In the United States Court of Federal Claims
No. 08-470C
(Filed Under Seal: September 30, 2008)
(Reissued: October 7, 2008)
*************************
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
ALABAMA AIRCRAFT INDUSTRIES,
INC. - BIRMINGHAM,
Plaintiff,
v.
UNITED STATES,
Defendant, and
THE BOEING COMPANY,
Intervening Defendant.
Post-award protest of a contract
to perform maintenance services
on the Air Force’s KC-135
Stratotanker fleet; standing;
change of name; organizational
conflicts of interest; evaluation
of past performance; pricerealism analysis; factors
governing equitable relief
*************************
David R. Hazelton, Latham & Watkins LLP, Washington, D.C., for plaintiff. With him
on the briefs were Roger S. Goldman, Kyle R. Jefcoat, Benjamin Wei, Andrew Stein, and Shiva
Aminian, Latham & Watkins LLP, Washington D.C.
Douglas K. Mickle, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C., for defendant. With him on the briefs were
Gregory G. Katsas, Assistant Attorney General, Civil Division, Jeanne E. Davidson, Director,
and Brian M. Simkin, Assistant Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C. Of counsel were Major Christopher L.
McMahon, Air Force Legal Operations Agency, Arlington, Virginia and Kenneth C. Kitzmiller,
Tinker Air Force Base Legal Office, Oklahoma City, Oklahoma.
1
Paul F. Khoury, Wiley Rein LLP, Washington, D.C., for intervening defendant. With
him on the briefs were Rand L. Allen, Scott M. McCaleb, Kara M. Sacilotto, Nicole P. Wishart,
and Heidi L. Bourgeois, Wiley Rein LLP, Washington, D.C.
OPINION AND ORDER1
LETTOW, Judge.
Alabama Aircraft Industries, Inc. - Birmingham (“Alabama Aircraft”)2 filed suit in this
court challenging the Department of the Air Force’s (“Air Force”) award of a contract to perform
maintenance and install modifications on the Air Force’s KC-135 Stratotanker fleet. The Air
Force made the award to Boeing Aerospace Operations (“Boeing”). The projected total value of
the contract is $1.2 billion. AR 6-78 (Proposal Analysis Report and Price Competition
Memorandum).3 Alabama Aircraft contests the award to Boeing on three principal bases: (1) that
Boeing had organizational conflicts of interest which the Air Force failed to identify and
mitigate; (2) that the Air Force erred in finding that Boeing’s past performance of relevant
contracts satisfied the standard of “satisfactory confidence;” and (3) that the Air Force failed
adequately to conduct a price-realism analysis of Boeing’s proposal. This suit follows on the
heels of two separate rounds of proceedings before the Government Accountability Office
(“GAO”). The parties have submitted cross-motions for judgment on the administrative record
in accordance with RCFC 52.1(b).
1
Because this opinion and order might have contained confidential or proprietary
information within the meaning of Rule 26(c)(7) of the Rules of the Court of Federal Claims
(“RCFC”) and the protective order entered in this case, it was initially filed under seal. The
parties were requested to review this decision and to provide proposed redactions of any
confidential or proprietary information on or before October 6, 2008. The proposals were timely
submitted, and a closed hearing was held on October 7, 2008. The resulting redactions are
shown by brackets enclosing asterisks, as follows: “[***].”
2
Alabama Aircraft was formerly known as Pemco Aeroplex, Inc. (“Pemco Aeroplex”),
and it submitted its bid in this case under its former name. See, e.g., Hr’g Tr. 29:4-15 (Sept. 4,
2008); Compl. ¶ 1 .
3
“AR ___” refers to the administrative record filed with this court in accordance with
RCFC 52.1(a). The administrative record is massive, amounting to approximately 46,000 pages,
and has been subdivided into tabs. The first number in a citation to the administrative record
refers to a particular tab, and the number after the hyphen refers to a page within a tab, e.g., “AR
4-1.”
The transcript of a hearing and evidentiary hearing held on September 4 and 5, 2008 is
cited as “Hr’g Tr. __.” Alabama Aircraft’s exhibits admitted into evidence at the evidentiary
hearing are cited as “PX __” and Boeing’s exhibits are cited as “BX __.”
2
Also pending before the court are the motions of the United States and Boeing to dismiss
Alabama Aircraft’s protest for lack of standing. The motions are premised upon claims that
Alabama Aircraft was not an “actual or prospective bidder” in this procurement and that it lacks
sufficient financial resources to perform the KC-135 contract.
After expedited proceedings to clarify the administrative record, see Alabama Aircraft
Indus.–Birmingham v. United States, 82 Fed. Cl. 757 (2008),4 a hearing on the pending motions
and an evidentiary hearing on jurisdictional issues were held on September 4 and 5, 2008. The
competing motions accordingly are ready for disposition.
FACTS5
A. The Air Force’s Solicitation
The instant protest arises from competing proposals to secure a contract to provide
maintenance for KC-135 Stratotankers, consisting of Programmed Depot Maintenance (“PDM”)
and Unscheduled Depot Level Maintenance (“UDLM”), as well as the installation of
modifications on the aircraft (collectively the “PDM Program”). The Oklahoma City Air
Logistics Center at Tinker Air Force Base (“Tinker”) is responsible for the KC-135 PDM
program and the award of the present contract. See AR 4-1 (Solicitation-Request for Proposal
(August 19, 2005)). PDM for the KC-135 has been provided by Air Force facilities at Tinker and
by contractors operating their own facilities. Most recently, Boeing has served as the contractor
for KC-135 PDM, operating at facilities located in San Antonio, Texas. As a subcontractor to
Boeing, Alabama Aircraft has also provided PDM services at a facility located in Birmingham,
4
The prior decision granted motions for supplementation of the administrative record and
discovery insofar as materials withheld by the government on grounds of attorney-client privilege
and work-product protection were concerned, after tentatively finding a waiver of the privilege
and protection. Alabama Aircraft, 82 Fed. Cl. at 771-72, 774.
5
The recitations that follow constitute findings of fact by the court drawn from the
administrative record of the procurement and evidentiary submissions related to the jurisdictional
and equitable-relief issues. See Bannum, Inc. v. United States, 404 F.3d 1346, 1356 (Fed. Cir.
2005) (bid protest proceedings “provide for trial on a paper record, allowing fact-finding by the
trial court”); Santiago v. United States, 75 Fed. Cl. 649, 653 (2007) (“In accord with RCFC 52.1,
the court ‘is required to make factual findings . . . from the [administrative] record as if it were
conducting a trial on the record.’”) (quoting Acevedo v. United States, 216 Fed. Appx. 977, 979
(Fed. Cir. 2007)).
Other findings of fact and mixed findings of fact and conclusions of law are stated in the
analysis which follows.
3
Alabama.6
Under the terms of the initial Request for Proposals (“RFP”) issued in 2005, the contract
would have a base period of four years and one month, plus five option years. AR 2-1
(Contracting Officer’s Statement of Facts (Oct. 19, 2007)). “The RFP was for the award of a
Firm Fixed Price and Fixed Price Award Fee Indefinite Delivery Indefinite Quantity Contract.”
Id.
On May 20, 2005, the Air Force circulated a draft RFP, Compl. ¶ 19, and on August 19,
2005, the Air Force released the official version of the RFP. AR 4-1 (Solicitation-Request for
Proposal). The RFP provided a Best Estimated Quantity (“BEQ”) of one aircraft requiring
contractor’s PDM in the first year of the contract, eight in the second year, 24 in the third year,
and 44 per year for the remainder of the contract. See AR 46.12-1581 (Request for Proposal,
Amendment 4 (May 31, 2006)).
The RFP provided that the Air Force would select the winner of the procurement on the
basis of which competitor “gives the Air Force the greatest confidence it will best meet our
requirements affordably.” AR 4-78 (Solicitation-Request for Proposal). To aid in evaluating the
competing proposals, the Air Force established four categories of inquiry: mission capability,
proposal risk, past performance,7 and cost/price.8 AR 4-79 (Solicitation-Request for Proposal).
6
Alabama Aircraft provided KC-135 PDM services as a prime contractor under a contract
with the Air Force from 1994 through 2001. See Alabama Aircraft, 82 Fed. Cl. at 760. Alabama
Aircraft has served as a subcontractor to Boeing on the KC-135 PDM program since the
companies entered into a Memorandum of Agreement in 2000. Id. That Memorandum of
Agreement was entered at the request of the Air Force after Boeing had been awarded the prime
contract but had difficulties performing the work. Id. Boeing currently holds a bridge contract
for the PDM work, effective October 1, 2005, and extending through September 30, 2008. Id.
Alabama Aircraft continues to serve as a subcontractor to Boeing under that bridge contract. Id.
Further details about the extensive history of contracts under the PDM program are set
out in the court’s prior opinion. See 82 Fed. Cl. at 760-761.
7
Under the RFP, the Air Force evaluated whether an offeror could successfully perform
under the terms of its offer, given its prior and present performance on government contracts, and
in that regard assigned the offeror a performance-confidence assessment. AR 4-83 (SolicitationRequest for Proposal). The RFP provided that an offeror could receive a performanceconfidence assessment of “high confidence,” “significant confidence,” “satisfactory confidence,”
“unknown confidence,” “little confidence,” or “no confidence.” AR 4-84 (Solicitation-Request
for Proposal).
8
Under the terms of the RFP, “the evaluation factors other than price, when combined, are
significantly more important than price; however, price will contribute substantially to the
selection decision.” AR 4-79 (Solicitation-Request for Proposal).
4
In assessing an offeror’s mission capability, the Air Force listed five subfactors for consideration:
depot maintenance, supply chain management, transition, program management, and small
business. AR 4-79 (Solicitation-Request for Proposal).9 Each of the mission capability
subfactors was to be assigned a color rating and a proposal risk rating. AR 4-79 (SolicitationRequest for Proposal).10 Although the KC-135 PDM contract was to be a fixed-price contract,
the RFP explicitly required the Air Force to evaluate the “reasonableness and realism of the
prices and labor rates proposed” by the offerors. AR 4-86 (Solicitation-Request for Proposal).
In determining which offeror should receive the award under the RFP, the Source Selection
Authority (“SSA”) was to make a decision based on “an integrated assessment of the source
selection team’s evaluations of the evaluation factors and subfactors.” AR 4-78 (SolicitationRequest for Proposal).
The Air Force purchased 732 KC-135 Stratotankers between 1954 and 1965. AR 3-59
(Department of Defense Inspector General Report (“DODIG Report”)). As the KC-135 model
aged, the Air Force found it necessary to implement a maintenance program for the aircraft. AR
3-59 (DODIG Report). Because the KC-135 fleet continues to age, the Air Force expects the
KC-135 PDM program to become increasingly more complex and to require an increase in the
labor hours necessary to perform PDM. See AR 65-2 (Talking Paper on C/KC 135 PDM
Recompetition Source Selection (Jun. 9, 2006) (“Air Force Talking Paper”)); see also Compl.,
Ex. 20 (C/KC-135 Depot Maintenance Hours Per Aircraft). Specifically, the maintenance history
of the KC-135 has confirmed that the “growth in corrosion related work” attributable to the aging
of the KC-135 fleet constitutes a significant challenge. AR 65-2 (Air Force Talking Paper).
On October 31, 2005, Boeing, with Pemco Aeroplex (as Alabama Aircraft was previously
named) serving as its subcontractor, submitted a proposal under the terms of the RFP. AR 50
(Boeing and Pemco’s Joint Proposal (Oct. 31, 2005)). On May 31, 2006, the Air Force filed an
amendment to the RFP providing for a BEQ of six aircraft in the first year of the contract and a
BEQ of 24 in the remaining years of the contract. See AR 46.12-1581 (Request for Proposal,
Amendment 4 (May 31, 2006)).11 In June 2006, the Air Force reduced the maximum number of
KC-135s that would potentially need to receive PDM from the offerors from 60 to 48. AR 2-1
9
Under the RFP, “subfactors 1, 2, and 3 are of equal importance and individually are of
more importance than subfactor[s] 4 or 5, with subfactor 5 being the least important subfactor.”
AR 4-79 (Solicitation-Request for Proposal).
10
The RFP provided for ratings of “Blue/Exceptional,” “Green/Acceptable,”
“Yellow/Marginal,” and “Red/Unacceptable.” AR 4-80 (Solicitation-Request for Proposal).
11
The Air Force later modified the BEQ for the KC-135 PDM to two aircraft for the first
year of the contract and 24 for every year thereafter. AR 46.12-1605 (Request for Proposal,
Amendment 11 (May 11, 2007)).
The eleventh amendment to the RFP was the final one. See AR 2-3 (Contracting
Officer’s Statement of Facts).
5
(Contracting Officer’s Statement of Facts). In response to these reductions in workload, Boeing
terminated its partnership with Pemco Aeroplex. See Pemco Aeroplex, Inc., B-310372, 2007 WL
4707636, at *2 (G.A.O. Dec. 27, 2007) (“Pemco Aeroplex I”).12
To guarantee its ability to bid for the contract, Pemco Aeroplex filed a protest with the
Air Force. See AR 2-3 (Contracting Officer’s Statement of Facts). In response to Pemco
Aeroplex’s protest, the Air Force amended the RFP to allow for the submission of new offers.
See Pemco Aeroplex I, AR 64-6. In September 2006, Pemco Aeroplex, Boeing, and Lockheed
Martin each submitted proposals to the Air Force. See AR 2-3 (Contracting Officer’s Statement
of Facts). The Air Force required the three offerors to submit their final proposals by June 22,
2007. See AR 2-2 (Contracting Officer’s Statement of Facts).
Boeing planned to rely upon L-3 Communications Integrated Systems (“L-3”) as one of
its subcontractors if it were to be awarded the procurement. AR 22-4 (Boeing Proposal (Sept. 8,
2006)).13 Both Boeing and L-3 have additional contracts with the Air Force that relate to the KC135 fleet. Def.’s Counterstatement of Facts (“Def.’s Facts”) at 7. L-3 is serving as a
subcontractor in implementing a “Lean” transformation program at Tinker, and in that capacity it
has been involved in initiating the “transformation of the organic KC-135 PDM line.” AR 93.11658 (Contracting Officer’s Statement of Facts (Oct. 18, 2007)).14 Boeing has an engineering
services contract with the Air Force to provide “day to day maintenance of the KC-135 weapon
system platform and to develop modifications to the KC-135 to ensure the continued service life
of the KC-135.” Def.’s Facts at 9; see also AR 74-50 (Alabama Aircraft’s Supplemental Protest
to GAO, B-310372.4 (Mar. 21, 2008)). Additionally, the Air Force selected Boeing to serve as a
technical consultant on this procurement. AR 4-51 (Solicitation-Request for Proposal). In that
regard, the RFP stated that “Boeing will only be used for technical questions which the Source
Selection Team may not be able to answer and those individuals at Boeing who are responsible
for answering the questions will sign Non-Disclosure Agreements.” AR 4-52 (SolicitationRequest for Proposal).
12
This decision by GAO has been made part of the administrative record as Tab 64, and
accordingly it will be subsequently cited by reference to that Tab.
13
L-3 had been included in Boeing and Pemco Aeroplex’s joint proposal as a
subcontractor. See AR 50-52 (Boeing and Pemco’s Joint Proposal).
14
“Organic PDM” is PDM that is performed by the Air Force at Tinker.
6
B. The Offerors’ Proposals, the Air Force’s Inquiries, Final Proposals, and the Initial Award
Addendum 1 to the RFP divided the work under the contract into 3 categories: PDM,15
Firm Fixed Price Intermittent Tasks,16 and Over and Above (“O&A”) work.17 See AR 46.12-365
(RFP-Addendum 1 Work Requirements and Procedures (Aug. 12, 2005)) (“RFP-Addendum 1”).
Addendum 1 informed potential offerors that prior to undertaking any O&A work the contractor
must seek the government’s approval. AR 46.12-366 (RFP-Addendum 1). If the Air Force
determines that the proposed work is necessary and not encompassed by other provisions of the
contract, “[t]he Government and the Contractor will then negotiate a settlement for the O&A.”
AR 46.12-366 (RFP-Addendum 1). The price the government would pay for the O&A work
would reflect the required labor hours established through negotiations between the contractor
and the administrative contracting officer, “multiplied by the contract hourly rate.” AR 46.12366 (RFP-Addendum 1). Addendum 1 informed potential offerors that the work requirements
shown in Attachment F of the contract may be varied from year to year. AR 46.12-367 (RFPAddendum 1). However, Addendum 1 does not explicitly address the problems of performing
maintenance on an aging KC-135 fleet. AR 46.12-367 (RFP-Addendum 1).18
A key component of Boeing and Pemco’s proposals was the manner in which they
conceived to implement the so-called “Lean” program given their abilities and limitations. See
AR 6-25, 35 (Proposal Analysis Report and Price Competition Memorandum); Hr’g Tr. 137:5-9.
The Lean program aims to streamline the KC-135 PDM process and to eliminate wasteful and
unnecessary steps, thus increasing the program’s efficiencies. Hr’g Tr. 134:16-24, 202:2-5. It
seeks to achieve these results both in the actual maintenance work on the aircraft and the
resources used to manage the maintenance program. Hr’g Tr. 135:21-22, 202:2-5.
Boeing’s version of the Lean program applied “lean principles in cells or specific aircraft
positions.” Hr’g Tr. 202:17-19 (referring to the “Lean Cellular Maintenance System”). In
implementing its Lean Cellular Maintenance System, Boeing focused on the proportion of time
15
The requirements for Programmed Depot Maintenance were set forth in attachments to
the RFP. See AR 46.12-509 (RFP-Addendum 1).
16
Addendum 1 explains that Firm Fixed Price Intermittent Tasks constitute maintenance
work that “is discretely defined, pre-priced and performed at the election of the Government.”
AR 46.12-365 (RFP-Addendum 1).
17
Addendum 1 defines O&A work as unexpected repairs which “require more than 200
hours to complete or exceed[] $20,000 in material cost.” AR 46.12-365 (RFP-Addendum 1).
18
Addendum 1 does provide that “[i]f at any time during contract performance, sufficient
data becomes available on a repetitive task being performed in the O&A category, either the
Contractor, the PCO, or the ACO may request a negotiation to establish a firm-fixed price for the
item for incorporation into the basic PDM price.” AR 46.12-367 (RFP-Addendum 1).
7
its employees actually spent working on the KC-135s. See Hr’g Tr. 203:2-4. To increase that
“touch” time, and thus efficiency, Boeing sought to deliver [***] to the mechanics as they
worked on the plane. Hr’g Tr. 202:20-23. Parts projected to be needed [***]. See AR 22-268
(Boeing Initial Proposal (Sept. 8, 2006)). To implement processes associated with its Lean
Cellular Maintenance System, Boeing devised an [***] approach to service 24 KC-135 aircraft
yearly. See, e.g., AR 30-2264 (Boeing Second Final Proposal Revision (June 18, 2007))
(“Boeing’s Second Revision”); Hr’g Tr. 205:14-25. However, depending on the number of KC135s that the Air Force would send for maintenance on a yearly basis, Boeing proposed to [***]
at its maintenance facility. AR 30-2264 (Boeing’s Second Revision); Hr’g Tr. 215:17 to 216:14.
Boeing’s [***] was designed to [***] and allow the mechanics to have efficient access to the
aircraft to meet the contract’s timely delivery requirements. Hr’g Tr. 215:6 to 216:14.
Pemco’s conception of the Lean program was structured around a [***] approach. AR
16-19 (Pemco Second Final Proposal Revision (June 18, 2007)) (“Pemco’s Second Proposal”).
As with Boeing, Pemco’s approach was governed in part by the physical characteristics of its
facilities, namely the shape and size of its maintenance hangars. Hr’g Tr. 141:18 to 142:15.
Pemco’s [***] approach limits the number of times the aircraft has to be moved in the PDM
process. Hr’g Tr. 142:7-15. To meet the Air Force’s BEQ of 24 KC-135s per year, Pemco
planned to use a [***] approach to performing PDM, relying on different hangars for the [***].
AR 16-116 (Pemco’s Second Proposal). Pemco’s approach effectively adds more [***] by
adding a further lines to accommodate an increase in aircraft requiring contractor PDM. See AR
6-35 (Proposal Analysis Report and Price Competition Memorandum).19 Pemco also proposed to
employ [***].
Essential to the ultimate decision of the Air Force to award the contract to Boeing was the
manner in which the competitors constructed and used their “learning curves.” See, e.g., AR 219 (Contracting Officer’s Statement of Facts); AR 54-5 to 54-8 (Contracting Officer’s Statement
of Facts (Apr. 18, 2008)). A learning curve is a mathematical representation of performance and
efficiency gains realized on related contracts or similar work. Hr’g Tr. 218:17-21; see also
Compl., Ex. 21 (Louis E. Yelle, The Learning Curve: Historical Review and Comprehensive
Survey (1979) (“Yelle, The Learning Curve”)) at 309. Two areas important for generating
improvements in a firm’s learning curve for a given type of work are gains in the skills of the
employees and the elimination or reduction of unproductive activity, e.g., leaving a worksite for
the purpose of gathering or retrieving tools or necessary materials. Yelle, The Learning Curve at
306. The greatest gains in efficiency occur “early in the process” and improvements become
harder to achieve over time as the more easily achieved improvements have been realized. Hr’g
Tr. 220:1-6.
19
To accommodate a higher number of aircraft, Pemco would use up to [***], each using
its [***]. See, e.g., AR 6-35 (Proposal Analysis Report and Price Competition Memorandum);
Hr’g Tr. 146:25 to 147:10.
8
Boeing’s initial proposal, with Pemco Aeroplex serving as a subcontractor, proposed a
[***] learning curve. AR 50-57 (Boeing’s and Pemco’s Joint Proposal). All of Boeing’s
subsequent proposals contained a [***] learning curve for [***] periods, gradually leveling off
over later periods in an asymptotic function. See, e.g., AR 60-15 (Proposal Analysis Report and
Price Competition Memorandum (Feb. 27, 2008)); see also AR 60-11 (graphical representation,
showing “Boeing’s learning curve go[ing] flat in the [***] year of contract performance”).20 In
Boeing’s initial proposal, it projected that during the first [***] years of the contract, the labor
hours necessary to complete PDM on a KC-135 would decrease and then would stabilize at that
rate for the remainder of the contract. AR 50-58 (Boeing’s and Pemco’s Joint Proposal). After
severing its relationship with Pemco, Boeing’s initial solo proposal [***] projected a decrease in
labor hours for the first [***] years of the contract and then showed a constant work rate for the
remainder of the contract. AR 22-899 (Boeing’s Initial Proposal). In a first set of evaluation
notices sent to Boeing, the government inquired as to why Boeing had not projected continuous
improvement in its performance after the [***] year of the contract. AR 23-4 (Boeing Initial
Evaluation Notices (Oct. 26, 2006)). In its response to the Air Force’s inquiry, Boeing replied:
Theoretically, Boeing agrees with the government. However, learning curve improvements
are predicated on a stable work package and predictable quantity throughput. Boeing has
chosen to recognize learning improvement through the PDM work statements provided
[***]. Based upon the recent volatility in the PDM throughput and the unknowns associated
with the work package in [***] through [***], Boeing has chosen not to reflect the savings
beyond the last aircraft in [***].
AR 24-6 (Boeing Initial Offeror Response Summary (Nov. 10, 2006)).
When Boeing submitted its final revised proposal (“Final Revision”) it incorporated a
[***] learning improvement over [***] relevant years. AR 27-876 (Boeing’s Final Revision
(Feb. 23, 2007)).21 The incorporation of a [***] learning improvement resulted in a reduction of
labor hours necessary to perform PDM during the [***] to [***] portion of the contract.
Compare AR 27-877 (Boeing’s Final Revision), with AR 22-899 (Boeing’s Initial Proposal).22
In its Final Revision, Boeing did not provide an explanation as to why it had changed to a [***]
20
In its second final proposal revision, Boeing states that the data it analyzed to construct
its learning curve actually supported a [***] learning curve. AR 30-1539 (Boeing’s Second
Revision).
21
Boeing thus put forward what amounted to a [***] learning function over the period
covered by the [***], rather than an asymptotic function that gradually tended toward a given
level of efficient performance as the learning process matured.
22
Due to the extension of the learning improvements, Boeing would experience a savings
in performing basic touch PDM labor of [***] hours per plane in [***]. Compare AR 27-877
(Boeing’s Final Revision), with AR 22-899 (Boeing’s Initial Proposal).
9
learning improvement, except that it advised that “[t]he final change related to the touch labor is
that we have priced [***] improvement beyond [***] along the defined curves. [The] [p]rior
submittal did not assume improvement beyond the last aircraft in [***].” AR 27-876 (Boeing’s
Final Revision). In actuality, the projected improvement in Boeing’s Final Revision exceeded
the learning curve in the [***] years; the [***] function of [***] improvement [***] exceeded
the improvement that was indicated by the asymptotic learning curve.
Pemco Aeroplex’s proposals included a [***] learning curve for the [***] year of the
contract. AR 8-975 to 8-976 (Pemco’s Initial Proposal (Sept. 14, 2006)). Pemco projected that
after the [***] year of the contract it would not realize a reduction in the hours required to
perform PDM. AR 8-977 (Pemco Initial Proposal). As with Boeing, the Air Force in its initial
evaluation notices inquired into Pemco Aeroplex’s failure to incorporate a continuous learning
curve into its offer. AR 9-5 to 9-6 (Pemco Initial Evaluation Notices (Oct. 26, 2006)). In
response to the Air Force’s question, Pemco stated:
The learning curve projections are consistent with a [***] mid point aircraft in FY [***]
and FY [***] aircraft at [***] hours. The learning curve will have matured by the
completion of the [***] providing a stable projection of [***] hours for the BEQ of 24
for years FY [***] and subsequent years.
AR 10-9 (Pemco’s Initial Offeror Response Summary (Nov. 10, 2006)). In its final response,
unlike Boeing, Pemco did not alter its learning-curve projection. See AR 13-805 to 13-806
(Pemco’s Final Proposal Revision (Feb. 23, 2007)). Pemco’s refusal to convert its learningcurve into a [***] function was premised in part upon the fact that the greatest learning gains are
realized early in the process and in part upon the belief that the aging of KC-135 fleet would
prevent it from realizing efficiencies in the later years of the contract. See AR 93.1-1653
(Contracting Officer’s Statement of Facts). Pemco’s failure to extend its learning-based
reductions in labor hours was the leading factor contributing to Boeing’s having lower labor
hours and a lower total evaluated price. See, e.g., AR 75-339 (Test. of Nancy Filippo, PKC
Price/Cost Analyst, GAO Hearing Transcript, B-310372 (Nov. 8-9, 2007)).
As the Air Force was nearing a decision on the procurement, Pemco Aeroplex’s parent
decided to undertake a corporate restructuring program. The restructuring involved a sister
subsidiary of Pemco Aviation Group, Inc. (“Pemco Aviation”). Hr’g Tr. 29:4-8. In addition to
Pemco Aeroplex, Pemco Aviation was the parent of Pemco World Air Services (“Pemco World
Air”)23 and Space Vector Corporation.24 Hr’g Tr. 29:4-8. To improve its financial posture,
23
Pemco World Air provided “commercial aircraft maintenance and modification services
on a contract basis to the owners and operators of large commercial aircraft.” Pl’s Opp’n to Mot.
to Dismiss, Ex. G (Pemco Aviation Annual Report Form 10-K) (Apr. 16, 2007)) at 1.
24
Space Vector Corporation “designs and manufactures a wide array of proprietary
aerospace products including various space systems, such as guidance control systems and launch
10
Pemco Aviation decided to sell Pemco World Air. Hr’g Tr. 78:1 to 79:6. During the latter half
of 2006, representatives of Pemco Aeroplex and Pemco Aviation began to have discussions with
government officials about the proposed sale of Pemco World Air, and the frequency of those
discussions increased as the possibility of a sale became more likely. Hr’g Tr. 75:14 to 76:3. In
July 2007, Pemco Aviation announced the sale of Pemco World Air to an affiliate of Sun Capital
Partners, Inc. PX 4 (E-mail from Randy Shealy to Jean Carter and Lt. Col. Bernard Badami (July
11, 2007)).25 On the date the sale was announced, Pemco Aviation’s Chief Financial Officer sent
an e-mail to the Administrative Contracting Officer for the KC-135 contract and to the head of
the local Defense Contract Management Agency, alerting them of the change. Hr’g Tr. 76:19-25;
PX 4. On September 19, the sale of Pemco World Air was completed and the purchaser acquired
the exclusive right to the Pemco name. Hr’g Tr. 32:11 to 33:3, 33:8 to 33:13. The names of
Pemco Aircraft and Pemco Aeroplex consequently were changed to Alabama Aircraft and to
Alabama Aircraft Industries, Inc.-Birmingham, respectively. Hr’g Tr. 33:14-25. At that point,
Alabama Aircraft became a small business, i.e., one with less than 1,000 employees. Hr’g Tr.
36:17-22.26 It did not, however, seek to amend its proposal to provide that information to the
Air Force, in part because the Air Force had just completed its analysis of the proposals and had
announced that Boeing was the awardee.
In its analysis of the competing offers, the Air Force awarded Boeing and Alabama
Aircraft the same ratings for depot maintenance, transition, program management, and small
business. AR 5-22 (Source Selection Decision Document (Sept. 7, 2007)) (“Decision
Document”). The Air Force concluded that Boeing’s proposal offered the lowest total evaluated
price and superior supply chain management, while Alabama Aircraft’s proposal had a better past
performance record. AR 5-22 (Decision Document).27 The Source Selection Authority awarded
the contract to Boeing because “Pemco’s better record of past performance [wa]s not sufficient to
outweigh the benefits of Boeing’s superior Mission Capability proposal and $15,048,062 lower
TEP [total evaluated price].” AR 5-22 (Decision Document). On September 10, 2007, the Air
vehicles.” Pl.’s Opp’n to Mot. to Dismiss, Ex. F (Pemco Aviation Quarterly Report Form 10-Q
(August 14, 2007)) at 7.
25
Pemco Aviation announced the sale of its subsidiary by filing an 8-K with Securities
and Exchange Commission (“SEC”) and disseminating a press release. Hr’g Tr. 32:14-15.
Subsequently, it filed both preliminary and final proxies with the SEC. Hr’g Tr. 32:21-24.
26
At the evidentiary hearing on jurisdictional issues, testimony was received that Alabama
Aircraft has approximately 550 employees. Hr’g Tr. 36:20-22.
27
Although Boeing and Alabama Aircraft both received a rating of satisfactory confidence
for past performance, AR 5-22 (Decision Document), the Air Force considered Alabama
Aircraft’s past performance to occupy “the high end of satisfactory” whereas Boeing’s past
performance was considered to be notably poorer. AR 6-164 (Proposal Analysis Report and
Price Competition Memorandum); AR 5-22 (Decision Document).
11
Force informed Alabama Aircraft that Boeing would be awarded the contract. Compl. ¶ 36.
C. The First GAO Protest
On September 11, 2007, Alabama Aircraft requested a debriefing, which occurred on
September 14, 2007. AR 21 (Pemco Debriefing (Sept. 14, 2007)); Compl. ¶ 36. Following the
debriefing, on September 19, 2007, Alabama Aircraft filed a protest at GAO, Compl. ¶ 38,
challenging the award to Boeing on several grounds including the failure of the Air Force to
identify and mitigate potential organizational conflicts of interest; inappropriate evaluations of
the past performance, mission capability, and price factors; and “an alleged violation of the
procurement integrity provisions of the Office of Federal Procurement Policy Act, 41 U.S.C.
§ 423.” Pemco Aeroplex I, AR 64-5. On December 27, 2007, GAO issued a decision sustaining
Alabama Aircraft’s protest on the ground that the Air Force’s price evaluation was flawed; GAO
rejected Alabama Aircraft’s other challenges to the award. Id., AR 64-5, 64-22.
GAO considered that the Air Force’s price evaluation was flawed because of the lack of
documentation “regarding any agency consideration of the basis for Boeing’s changed
assumptions, how Boeing’s revised assumptions correspond to the reality of the aging KC-135
fleet discussed by the agency, [or] how the revised assumptions correspond to the agency’s own
labor hour projections.” Pemco Aeroplex I, AR 64-17. Absent documentation, GAO was
“unable to determine whether the agency reasonably concluded that Boeing’s proposed price is
realistic, or whether the agency’s assessment of ‘low risk’ for Boeing’s proposal, under each of
the mission capability subfactors, is reasonable in light of Boeing’s revised labor hour
assumptions.” Id. To address the shortcomings identified by its decision, GAO recommended
that the Air Force “perform and document a realism assessment regarding Boeing’s assumption
of [***] decreasing labor hour requirements in the context of an aging KC-135 aircraft fleet,
along with a risk assessment regarding . . . Boeing’s labor hour reductions.” Id., AR 64-22.
In response to GAO’s decision, the Air Force filed a request for reconsideration. See
Pemco Aeroplex, Inc.-Reconsideration, B-310372.2, 2008 WL 360927, at *1 (G.A.O. Feb. 1,
2008) (“Pemco Aeroplex II”).28 The Air Force’s motion was premised on the grounds that the
GAO decision ignored evidence that the Air Force had properly analyzed and documented
Boeing’s reduction in labor hours and price in its final proposal. Id., AR 63-4. The Air Force
contended that an evaluation notice sent to Boeing in October 2006 had requested an explanation
of its failure to extend its learning curve [***], and the response showed a detailed analysis of the
labor hours. Id., AR 63-6. On February 1, 2008, GAO rejected the Air Force’s request for
reconsideration, adhering to its determination that the record lacked a “contemporaneous
evaluation of the effect of Boeing’s reducing its proposed number of labor hours on proposal risk
or price realism.” Id., AR 63-5. The Air Force had also argued that the RFP and Addendum 1
addressed the question of aging aircraft, “assert[ing] that the RFP actually assumes a non-aging
28
GAO’s decision on reconsideration is present in the administrative record at Tab 63 and
will be cited to that Tab.
12
fleet.” Id., AR 63-5 to 63-6. GAO refused to consider that contention by the Air Force,
concluding that it was not properly before it. Id. GAO noted that “Pemco twice raised (and the
[Air Force] explicitly acknowledged) the aging aircraft issue,” but the Air Force had not
previously raised in its defense the claim that the RFP had assumed a non-aging fleet. Id. GAO
nonetheless commented that it had reviewed the documents cited by the Air Force and found
“unpersuasive the agency’s claim that any portion of the cited documents put offerors on notice
that they should assume an aircraft fleet that does not continue to age.” Id., AR 63-6 n.4.
D. The Air Force’s Corrective Action
In response to GAO’s decision sustaining Alabama Aircraft’s protest on grounds of a
flawed price analysis and the failure to consider the risk created by Boeing’s reduction in
projected labor hours, the Air Force took a limited corrective action. See AR 54-1 (Contracting
Officer’s Statement of Facts). The Air Force did not seek new information from any of the
offerors. See, e.g., AR 56-7 to 56-10 (Pemco Debriefing (Mar. 7, 2008)); AR 55-70 to 55-85
(Pemco Protest B.310372.3, Attach. 3 (Mar. 7, 2008)). Instead, the Air Force undertook an
analysis with the information that it had in hand. AR 59-1, 59-9 to 59-10, 59-23 to 59-24
(Source Selection Decision Document (Feb. 29, 2008)). In performing the price analysis, as
required by the RFP,29 the Air Force concluded that:
Boeing’s proposal supports their labor approach with historical information and a
proposed improvement curve that is more conservative than their historical actuals.
While a [***] learning curve increases Boeing’s risk when compared to their IEB [Initial
Evaluation Briefing] proposal, it is acceptable and achievable in light of the information
submitted with the cost volume. Upon reconsideration, the evaluation team considers
Boeing’s proposed approach, including reduced flow days and labor hours[,] is
achievable and realistic.
AR 60-16 (Proposal Analysis Report and Price Competition Memorandum (Feb. 27, 2008)).
Under the terms of the RFP, the contract was a fixed-price contract. AR 4-3 to 4-28
(Solicitation-Request for Proposal). In a fixed price contract, the risk of loss is borne by the
contractor. In conducting the price-realism analysis, the Air Force examined the number of days
Boeing proposed it needed to complete each step of its PDM program; the historical efficiency
gains recognized by Boeing on other related contracts; the competitors’ total average cost per
aircraft; the average material cost per aircraft; and the average labor cost per aircraft. AR 60-69
(Proposal Analysis Report and Price Competition Memorandum); AR 61-36, 61-37, 61-90 (Final
Decision Briefing (Feb. 27, 2008)). The Air Force concluded that Boeing’s [***] learning curve
29
The Federal Acquisition Regulations (“FAR”), by their own terms, do not require an
agency to conduct a price-realism analysis in awarding a fixed price contract, see 48 C.F.R.
§ 15.305(a)(1), but in this case the RFP required the Air Force to perform a price-realism
analysis. See AR 4-86 to 4-87 (Solicitation-Request for Proposal).
13
and reduction in labor hours was not “unreasonable in light of past learning shown by Boeing on
this and other programs and based on the specific requirements of a set work package [in
accordance with] the RFP.” AR 61-37 (Final Decision Briefing). In the Air Force’s view,
Boeing’s decision to make its [***] showed a willingness to assume increased risk of loss on the
contract and pass on savings attributable to gains in efficiency to the Air Force. AR 60-18, 60-20
(Proposal Analysis Report and Price Competition Memorandum).
Portions of the administrative record contradict the conclusion that Boeing increased its
risk in this multi-year fixed-price contract by extending its learning curve. See, e.g., 60-5
(Proposal Analysis Report and Price Competition Memorandum); 54-9 (Contracting Officer’s
Statement of Facts). The Air Force, in its Proposal Analysis Report and Price Competition
Memorandum, stated: “Addendum I also clarified that the Air Force intends that negotiated
adjustments to the proposed Firm Fixed Price (FFP) associated with this effort would be made
during performance of the resulting to contract to accommodate T.O. [Technical Order] changes,
chronic aging aircraft issues, modifications and work package changes.” AR 60-5 (Proposal
Analysis Report and Price Competition Memorandum). Moreover, the contracting officer, in
response to Alabama Aircraft’s second protest at GAO, stated that:
[a] review of Sections L & M of the RFP reveals that there is no requirement
for the SSET [Source Selection Evaluation Team] to try and account for
uncertainties of an ‘aging KC-135 fleet.’ . . . It was fully understood by the
incumbent Offerors that out year work package changes would be negotiated
since this has been the common practice for years on the prior PDM contracts.
Any new Offeror should have understood this concept as well, due to the fact
that RFP Addendum I stated that we would negotiate out year work package changes.
AR 54-9 (Contracting Officer’s Statement of Facts) (emphasis added).
E. The Second GAO Protest
On March 3, 2008, the Air Force informed Alabama Aircraft that it had affirmed the
award of the KC-135 PDM contract to Boeing. AR 55-39 (Protest B-310372.3 Attach. 1 (Mar. 3,
2008)). On March 7, the Air Force debriefed Alabama Aircraft and Boeing. AR 56-1 (Pemco
Debriefing (Mar. 7, 2008); AR 57-1 (Boeing Debriefing (Mar. 7, 2008)). Subsequently, on
March 11, Alabama Aircraft filed a protest with GAO. AR 55-1 (Protest B-310372.3). Alabama
Aircraft’s protest was based on its contention that the Air Force had failed to obtain and analyze
necessary information from Boeing regarding its decision to implement a [***], especially given
the realities of an aging KC-135 fleet. AR 55-7 to 55-12 (Protest B-310372.3).30 In addition to
30
Alabama Aircraft asserted as it had in its prior protest that the Air Force’s normalization
and risk analyses were flawed and therefore the award to Boeing should be set aside. AR 55-15,
55-20 (Protest B-310372.3). Alabama Aircraft contends that the Air Force was unable to
perform “an ‘apples to apples’ comparison of the proposed labor hours of both Boeing and
14
its prior objections, Alabama Aircraft raised the alleged failure of the Air Force to inform it of
potential changes to the PDM program cycle and the number of aircraft needing PDM, to
consider the [***] of Boeing, to consider Alabama Aircraft’s new small-business status a
relevant factor, and to account for the alleged bias of a former Source Selection Authority. AR
55-25, 55-28, 55-32, 55-33 (Protest B-310372.3).
On March 21, 2008, Alabama Aircraft filed a supplement to its bid protest concerning the
alleged failure of the Air Force to disclose proposed changes to the PDM cycle and an increase in
the number of aircraft which an offeror would be required to service. AR 74-1 (Pemco
Supplemental Bid Protest B-310372.4 (Mar. 21, 2008)).31 Alabama Aircraft claimed that the Air
Force was considering replacement of the current five-year cycle for PDM with a regimen of
“light” PDM every four years and “heavy” PDM every eight years. AR 74-5 to 74-6 (Protest,
B-310372.4). On May 2, 2008, GAO dismissed Alabama Aircraft’s supplement. Pemco
Aeroplex Inc., No. B-310372.4, 2008 WL 1930918 (G.A.O. May 2, 2008) (“Pemco Aeroplex
III”).32 In reaching its decision to dismiss Alabama Aircraft’s supplemental protest, GAO relied
upon a declaration supplied by Colonel James Nally, the officer responsible for both contractor
and organic PDM maintenance. AR 84-7 (Agency Request for Summary Dismissal B-310372.4,
Ex. 1 (Decl. of Colonel James J. Nally (Apr. 4, 2008) (“Nally Decl.”))). Colonel Nally’s
declaration rebutted Alabama Aircraft’s allegation that there had been a change in the BEQ and
explained that the potential change in the PDM cycle “is an on-going study . . . to determine if
the model is feasible. . . . All the data necessary to make this decision [to alter the current PDM
cycle] will not be available until FY[20]14. Until the study and prototyping is complete and the
data fully evaluated, the requirement for contract PDM to support a five year cycle will not
change.” AR 84-7 to 84-8 (Nally Decl.).
On June 13, 2008, GAO denied Alabama Aircraft’s protest of the Air Force’s decision
confirming the award of a contract to Boeing. Pemco Aeroplex, Inc., B-310372.3, 2008 WL
2684841 (G.A.O. June 13, 2008)) (“Pemco Aeroplex IV”).33 GAO dismissed the portion of
Alabama Aircraft’s claim that the Air Force had erred by failing to solicit and acquire new
information from the offerors. Id., AR 91-7. GAO noted that the flaw identified in its prior
Pemco,” and that the Air Force failed to take proper account of Boeing’s “schedule and
performance risks.” Id.
31
After the award of the contract to Boeing, Pemco asserted that in a program
management review meeting, the Air Force had “announced . . . an increase in the expected
number of aircraft undergoing contractor PDM each year from 24 to 36.” AR 74-4 (Pemco
Supplemental Bid Protest B-310372.3).
32
GAO’s decision dismissing Pemco Aeroplex’s supplement is present in the
administrative record as Tab 90.
33
GAO’s final decision is present in the administrative record as Tab 91.
15
decision was the lack of “documentation regarding a price realism analysis that considered the
effect of the labor hour reductions incorporated into Boeing’s final proposal revisions,” along
with a shortage of evidence suggesting the Air Force had analyzed the potential risk stemming
from Boeing’s reduction in labor hours. Id., AR 91-5. To remedy this deficiency, GAO opined
that the Air Force was not required to reopen discussions, but rather could reasonably have opted
to provide the documentation and evaluation that was missing from its original decision
awarding the contract to Boeing. Id., AR 91-7.
Then, on the merits, GAO dismissed Alabama Aircraft’s claim that the Air Force’s pricerealism analysis was flawed. Pemco Aeroplex IV, AR 91-7 to 91-9. As part of its corrective
action, the Air Force had evaluated both Boeing’s price realism and the proposal risk given the
extension of the learning function. Id., AR 91-8. GAO addressed the aging-aircraft issue in light
of the Air Force’s representation that the RFP and Addendum 1 had negated or mitigated the
issue, accepting that “the solicitation contemplates periodic renegotiation of the required PDM
work packages, along with negotiated adjustments to the contractor’s compensation.” Id., AR
91-6 n.10. GAO alternatively concluded that even if the RFP and Addendum 1 did not remove
the issue of providing PDM for an aging fleet of KC-135s, the Air Force had indicated that any
increases in maintenance due to the natural aging of the aircraft “would not be significant enough
to offset Boeing’s projected efficiencies.” Id., AR 91-6.
F. Procedural History in this Court
Promptly after GAO denied Alabama Aircraft’s protest, Alabama Aircraft filed a
complaint in this court on June 27, 2008. After Alabama Aircraft’s complaint was filed, Boeing
was granted leave to participate in the case as an intervening defendant, and this court adopted an
accelerated schedule for submitting and clarifying the administrative record and for filing crossmotions for judgment on that record in accord with RCFC 52.1. Alabama Aircraft’s motions to
supplement the administrative record and for discovery were granted with respect to materials
previously withheld on grounds of attorney-client privilege and work-product protection, upon a
finding of waiver, but were otherwise denied in part. See Alabama Aircraft, 82 Fed. Cl. at 774.
The parties thereafter reached agreement on supplementation of the administrative record to
include the previously withheld materials. See Notice of Filing Supplemental Administrative
Record, Docket No. 91 (sealed) (August 21, 2008); see also Order of August 6, 2008, Docket
No. 70 (sealed) (granting motion by Alabama Aircraft and the government for supplementation
of the administrative record to include the materials in dispute and establishing protective terms
applicable to that inclusion).
JURISDICTION
This is a post-award bid protest. The Tucker Act, as amended by the Administrative
Dispute Resolution Act of 1996 (“ADRA”), Pub. L. No. 104-320, §§ 12(a), 12(b), 110 Stat.
3870, 3874-75 (Oct. 19, 1996) (codified at 28 U.S.C § 1491(b)), provides that this court “shall
have jurisdiction to render judgment on an action by an interested party objecting to a solicitation
16
by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the
award of a contract or any alleged violation of statute or regulation in connection with a
procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1). This statute further provides
that this court “shall have jurisdiction to entertain such an action without regard to whether suit is
instituted before or after the contract is awarded.” Id. These provisions of the Tucker Act
provide this court with jurisdiction over both pre- and post-award bid protests, as well as
violations of statutory and regulatory provisions applicable to a procurement. See American
Fed’n of Gov’t Employees v. United States, 258 F.3d 1294, 1300 (Fed. Cir. 2001); RAMCOR
Servs. Group, Inc. v. United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999). This post-award bid
protest falls squarely with the reach of Section 1491(b)(1), and thus this court has subject matter
jurisdiction to adjudicate Alabama Aircraft’s claims in this case, subject to the government’s and
Boeing’s contentions that Alabama Aircraft lacks standing to challenge the award of the KC-135
contract to Boeing.
STANDARDS FOR DECISION
A. MOTIONS TO DISMISS
As part of the court’s threshold jurisdictional inquiry, the court must determine whether
the bid protester has standing to sue. See Rex Serv. Corp v. United States, 448 F.3d 1305, 1307
(Fed. Cir. 2006). Alabama Aircraft bears the burden of establishing by a preponderance of the
evidence that it has standing to pursue its claims. Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992); Rex Service, 448 F.3d at 1307; Myers Investigative & Sec. Servs., Inc. v. United
States, 275 F.3d 1366, 1370 (Fed. Cir. 2002).
If a material factual dispute arises concerning this court’s jurisdiction, the court may
conduct proceedings to address the contested jurisdictional issues. Land v. Dollar, 330 U.S. 731,
735 n.4 (1947); McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936); CedarsSinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1584 (Fed. Cir. 1993); Association of Merger Dealers,
LLC v. Tosco Corp., 167 F.Supp.2d 65, 69 (D.D.C. 2001). In this instance, the court received
documentary materials and then held an evidentiary hearing at which relevant witnesses testified
about the effect of the sale of Pemco World Air on Alabama Aircraft’s financial position,
corporate structure, and proposal under the RFP and whether notice was given to the Air Force.
See Lechliter v. United States, 70 Fed. Cl. 536, 543 (2006) (“[T]he court may look beyond the
pleadings and ‘inquire into jurisdictional facts’ in order to determine whether jurisdiction exists.”
(quoting Rocovich v. United States, 933 F.2d 991, 993 (Fed. Cir. 1991))).
17
B. Cross-Motions for Judgment on the Administrative Record
Under 28 U.S.C. § 1491(b)(4),34 this court’s review of a bid protest is governed by the
standards contained in the Administrative Procedure Act (“APA”), 5 U.S.C. § 706. Under the
APA, this court may set aside an agency decision which is “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). A reviewing court
should determine whether the agency’s “decision was based on a consideration of the relevant
factors and whether there has been a clear error of judgment.” Citizens to Preserve Overton
Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), abrogated in part by Califano v. Sanders, 430
U.S. 99, 105 (1977) (abrogating the portion of Overton Park that recognized the APA as an
independent grant of subject matter jurisdiction). In accord with these provisions for judicial
review, it is axiomatic that a reviewing court cannot “substitute its judgment for that of the
agency,” Keeton Corr., Inc. v. United States, 59 Fed. Cl. 753, 755 (2004) (quoting Overton Park,
401 U.S. at 416), and may overturn an agency’s contracting decision only if “the procurement
official’s decision lacked a rational basis; or . . . the procurement procedure involved a violation
of regulation or procedure.” Impresa Construzioni Geom. Domenico Garufi v. United States,
238 F.3d 1324, 1331 (Fed. Cir. 2001) (citing Kentron Haw., Ltd. v. Warner, 480 F.2d 1166, 1169
(D.C. Cir. 1973)). An agency’s contracting decision lacks a rational basis if the agency “‘entirely
failed to consider an important aspect of the problem, offered an explanation for its decision that
runs counter to the evidence before the agency, or is so implausible that it could not be ascribed
to a difference in view or the product of agency expertise.”’ Keeton Corr., 59 Fed. Cl. at 755
(quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983)).
To prevail on the merits of a protest, a protestor must succeed not only in demonstrating
that the agency actions were not supported by a rational basis or that the procedures used in the
procurement were contrary to law, but must also establish that the agency’s error actually
operated to prejudice the protester in the procurement. Bannum, Inc. v. United States, 404 F.3d
1346, 1351 (Fed. Cir. 2005); Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054,
1057 (Fed. Cir. 2000). In bid protest jurisprudence, prejudice is relevant at two distinct portions
of a case, “first in analyzing whether the protestor has standing to pursue its claims and then near
the end of the analytical process in determining whether the protestor is entitled to relief.”
Systems Plus, Inc. v. United States, 69 Fed. Cl. 757, 769 (2006). To satisfy the requirement of
the second type of prejudice, the protestor must demonstrate “that there was a ‘substantial chance
it would have received the contract award but for that error.’” Galen Med. Assocs., Inc. v. United
States, 369 F.3d 1324, 1331(Fed. Cir. 2004) (quoting Statistica, Inc. v. Christopher, 102 F.3d
1577, 1582 (Fed. Cir. 1996)). If a protestor is able to make these showings, the court “may
award any relief that the court considers proper, including declaratory and injunctive relief except
that any monetary relief shall be limited to bid preparation and proposal costs.” 28 U.S.C.
§ 1491(b)(2); see PGBA, LLC v. United States, 389 F.3d 1219, 1228-229 (Fed. Cir. 2004) (listing
34
This portion of the statute provides that “[i]n any action under this subsection, the courts
shall review the agency’s decision pursuant to the standards set forth in section 706 of title 5.”
28 U.S.C. § 1491(b)(4).
18
the factors that a trial court should consider in deciding whether a permanent injunction should
be issued).
ANALYSIS
I. STANDING
The Air Force and Boeing contend that Alabama Aircraft does not have standing, and
thus that this court has no jurisdiction over Alabama Aircraft’s claims, because it is not an
“interested party” under the ADRA. The Federal Circuit has construed the term “interested
party” in the ADRA to have the same meaning as it does under the Competition in Contracting
Act, 31 U.S.C. §§ 3551-56. Rex Service, 448 F.3d at 1307; American Fed’n of Gov’t Employees
v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001).35 Standing to bring a protest under the
ADRA is “limited to actual or prospective bidders or offerors whose direct economic interest
would be affected by the award of the contract or by failure to award the contract.” American
Federation, 258 F.3d at 1302. The Federal Circuit has refined its definition of interested party to
require a protestor to have a “greater than an insubstantial chance of securing the contract if
successful on the merits of the bid protest.” Information Tech. & Applications Corp. v. United
States, 316 F.3d 1312, 1319 (Fed. Cir. 2003).
The Air Force and Boeing claim that Alabama Aircraft fails to qualify as an “interested
party” because “it is not the same entity that submitted a proposal” and because it lacks adequate
financial resources to perform the KC-135 contract. Intervening Def.’s Reply to Pl.’s Opp’n to
Def.’s and Intervening Def.’s Mot. to Dismiss at 1-2 (“Intervening Def.’s Reply on Standing”);
see also Def.’s Mot. to Dismiss at 10. The Air Force further argues that “[i]f Pemco actually
wished to change its name, or declare [Alabama Aircraft] a successor in interest to the bid, as
[Alabama Aircraft] appears to allege, Pemco should have done so formally so that the
Government could determine if its interests are protected.” Def.’s Mot. to Dismiss at 11.
Alabama Aircraft resists these contentions on the grounds that it is the same corporate entity as
Pemco Aeroplex, that the Air Force had notice of the sale of Pemco World Air and the resulting
name change, and that it has the financial capability to perform the contract, as evidenced by an
audit report prepared in June 2008 by the Defense Contract Audit Agency. Pl.’s Opp’n to Def.’s
and Intervening Def.’s Mot. to Dismiss at 10, 19-20 (“Pl.’s Opp’n). Whether Alabama Aircraft
qualifies as an “interested party” and has standing to protest must be addressed as a threshold
issue in this case.
35
The Competition in Contracting Act states that “[t]he term ‘interested party,’ with
respect to a contract or a solicitation or other request for offers . . ., means an actual or
prospective bidder or offeror whose direct economic interest would be affected by the award of
the contract or by failure to award the contract.” 31 U.S.C. § 3551(2)(A).
19
A. Same Legal Entity
In the instant bid protest, the plaintiff submitted its proposal for the KC-135 PDM
procurement under the name of Pemco Aeroplex. AR 16-1 (Pemco’s Second Proposal). As
previously noted, Pemco Aeroplex was a subsidiary of Pemco Aviation. Hr’g Tr. 29:4-8. In
addition to Pemco Aeroplex, Pemco Aviation was the parent of Pemco World Air Services and
Space Vector Corporation. Hr’g Tr. 29:4-8. In July 2007, Pemco Aviation announced that it was
selling Pemco World Air to an affiliate of Sun Capital Partners, Inc. See Hr’g Tr. 32:11-12. The
sale was completed in September 2007. Hr’g Tr. 33:2-3. The stock purchase agreement
provided the buyer with the exclusive right to use the Pemco name; as a result, the names of
Pemco Aviation and Pemco Aeroplex were changed to Alabama Aircraft Industries, Inc. and
Alabama Aircraft Industries, Inc.-Birmingham, respectively. Hr’g Tr. 33:10-25.
In response to the sale of Pemco World Air, the articles of incorporation of both Pemco
Aviation and Pemco Aeroplex were amended to reflect the new names. Hr’g Tr. 33:14-18, 34:12.36 The amendment to the articles of incorporation changing the name of Pemco Aeroplex to
Alabama Aircraft expressly stated that “[a]ll other provisions of the Articles of Incorporation of
the Corporation shall remain in full force and effect.” Pl.’s Opp’n, Ex. B (Articles of
Amendment to the Articles of Incorporation of Pemco Aeroplex, Inc. (Nov. 26, 2007)). The
amendments regarding names were the only changes to the corporate bylaws made in response to
the sale of Pemco World Air. Hr’g Tr. 34:24 to 35:1, 35:21-23. Additionally, the only
changemade to Pemco Aeroplex’s central contractor registration was to reflect its adoption of a
new name. Hr’g Tr. 36:5-9. The sale of Pemco World Air did not result in any change to Pemco
Aeroplex’s tax identification number. Hr’g Tr. 36:13-16. And, the sale of Pemco World Air had
no effect on Pemco Aeroplex’s corporate structure, place of business, employees, or business
activities. Hr’g Tr. 35:2-19. The chief result of the sale was to improve the financial resources
of Pemco Aviation and Pemco Aeroplex in a very significant way. Hr’g Tr. 78:14 to 79:6.
The Air Force and Boeing seize upon Alabama Aircraft’s new status as a small business
to argue that Alabama Aircraft “is an entirely different entity,” Intervening Def.’s Mot. to
Dismiss at 8, and thus “does not have a valid proposal before the Air Force.” Def.’s Mot. to
Dismiss at 13-14. The position asserted by Boeing and the Air Force is not supportable. A
change in size does not automatically equate to a company becoming a “new” entity. Here, it is
undisputed that at the time the final bids were submitted, Alabama Aircraft was a large business.
AR 16-1840 (Pemco’s Second Proposal). The fact that Alabama Aircraft’s parent company sold
one of its subsidiaries after the close of bidding and changed its name does not establish that
Alabama Aircraft and Pemco Aeroplex are different entities. The subsidiary that was sold had a
36
The articles of incorporation of Pemco Aviation were amended on September 19, 2007
to reflect its new name. Pl.’s Opp’n, Ex. D (Form 8-K filed by Pemco Aviation (Sept. 19, 2007))
at 3; Hr’g Tr. 33:14-18. On November 26, 2007, Pemco Aeroplex’s articles of incorporation
were amended to reflect the name change. Pl.’s Opp’n, Ex. B (Articles of Amendment to the
Articles of Incorporation of Pemco Aeroplex, Inc. (Nov. 26, 2007)).
20
different business, maintaining civilian aircraft, at a different location, Dothan, Alabama, and had
a completely separate roster of employees. As detailed above, the only effects of the completion
of the sale on the entity that submitted a bid for the KC-135 contract were the change in the
entity’s name and a material improvement in its financial resources.
B. Same Operations
The sale of the Pemco World Air subsidiary did not affect the operational resources that
Alabama Aircraft could devote to the KC-135 PDM contract. Hr’g Tr. 103:1-12. Prior to the
sale, Alabama Aircraft did not rely on either the personnel or the assets of Pemco World Air to
perform its work. Hr’g Tr. 31:19 to 32:3. Consistent with the separate existence of Pemco
World Air and Alabama Aircraft, Pemco World Air had no involvement with the current KC-135
bridge contract. Hr’g Tr. 32:4-10. The sale of Pemco World Air did not affect any of the
facilities, equipment, or personnel that were necessary to perform the work contemplated by
Alabama Aircraft’s proposal. Hr’g Tr. 103:1-12.
Boeing and the Air Force claim that because of the sale of Pemco World Air, “the parent
company does not appear to have any of the additional workforce, capabilities, facilities and
resources Pemco touted in its proposal and upon which the Contracting Officer relied in finding
[Alabama Aircraft] responsible.” Intervening Def.’s Reply at 3. However, the several references
in the proposal to Alabama Aircraft’s parent company’s resources connoted only that Alabama
Aircraft had the financial support of its parent. Hr’g Tr. 108:16-22. Additionally, both prior to
and after the sale of Pemco World Air, the parent company “did not have a touch level
workforce” or facilities of its own. Hr’g Tr. 69:16-22. Those resources inhered in Pemco
Aeroplex, not Pemco Aviation, and, separately, in Pemco World Air.
Boeing, in its motion to dismiss, relies on the decision in Emerald Coast Finest Produce
Co. v. United States, 79 Fed. Cl. 466, 470-71 (2008). Intervening Def.’s Mot. to Dismiss at 8-9.
However, that decision is inapposite to the present case. The court in Emerald Coast found that
the protestor no longer had standing to pursue injunctive relief in a bid protest because it had sold
assets which were necessary to perform the contract and in connection with that sale had entered
into a non-compete agreement. 79 Fed. Cl. at 471. Unlike the situation in Emerald Coast, the
subsidiary sold by Alabama Aircraft’s parent company performed work unrelated to Alabama
Aircraft’s maintenance on military aircraft and did not affect its ability to perform the contract at
issue. Hr’g Tr. 29:9-22, 103:1-12. Alabama Aircraft did not rely on the availability of resources
from Pemco World Air in formulating its proposal. AR 8-302 (Pemco Initial Proposal); Hr’g Tr.
107:18-25. Boeing’s motion to dismiss fails to explain how the assets sold by Alabama
Aircraft’s parent corporation were necessary for Alabama Aircraft to perform the contract or that
the assets were “necessary to its proposed approach.” Intervening Def.’s Mot. to Dismiss at 8-9.
The sale of Pemco World Air did not affect the physical resources on which Alabama Aircraft
would rely in performing the KC-135 PDM contract.
21
C. Enhanced Financial Position
In their motions to dismiss, Boeing and the Air Force strenuously challenge the financial
ability of Alabama Aircraft to perform the KC-135 PDM contract. Intervening Def.’s Mot. to
Dismiss at 9; Def.’s Mot. to Dismiss at 2. In contesting Alabama Aircraft’s financial capability
to perform the contract at issue, Boeing relies on the fact that approximately 80% of the
company’s revenue comes from the current KC-135 bridge contract and that Alabama Aircraft
sought a waiver for its 2008 pension payment. Hr’g Tr. 86:2-18, 89:4-7.37 Boeing claims the
perceived financial shortcomings of Alabama Aircraft and its status as a small business preclude
it from having an economic interest in the instant contract because Alabama Aircraft “is not the
type of contractor to whom the Government awards contracts valued in excess of one billion
dollars for services vital to national security.” Intervening Def.’s Mot. to Dismiss at 9.
The sale of Pemco World Air provided its parent company with an immediate cash
infusion that eliminated an outstanding $30 million debt and provided a $5 million cash reserve.
Hr’g Tr. 78:14-19. Prior to the sale of Pemco World Air, the parent company “had no cash and
had to borrow the revolver for the quarter ending September of 2007.” Hr’g Tr. 78:25 to 79:2.
By contrast, at the close of August 2008, Alabama Aircraft had $12.7 million in cash reserves.
Hr’g Tr. 78:20-22. A Defense Contract Audit Agency (“DCAA”) report completed in June 2008
concluded that the “contractor’s financial condition is acceptable for performing on Government
contracts. Our examination of [Alabama Aircraft’s] financial capability disclosed that it will be
capable of performing on its Government contracts in the near-term.” BX-1, Tab 3 (DCAA
Audit Report (June 13, 2008)) (“2008 DCAA Audit Report”) at 2. This report stands in stark
contrast to a report prepared by DCAA in February 2007, which predated the sale of Pemco
World Air and concluded “the contractor is in an unfavorable financial condition.” BX-1, Tab 4
(DCAA Audit Report (Feb. 16, 2007)) at 1.38 Currently, due its increased cash reserves,
Alabama Aircraft has sufficient capital both to pay its outstanding pension obligation and begin
performance on the KC-135 PDM contract. Hr’g Tr. 96:12-15. Furthermore, if Alabama
Aircraft were to be awarded the KC-135 PDM contract, the pertinent state and local governments
have pledged an investment of $7.5 million to allow Alabama Aircraft to address “facility
infrastructure and personnel resources.” AR 16-1 (Pemco’s Second Proposal).
37
Alabama Aircraft’s waiver request remained pending at the time of the hearing on
September 4, 2008. Hr’g Tr. 86:4-20. If Alabama Aircraft’s waiver request were to be denied, it
would be “required to contribute approximately $3.7 million for the 2007 plan year by September
15, 2008.” BX-1, Tab 8 (Form 10-Q filed by Alabama Aircraft Industries, Inc. (June 30, 2008))
at 22; see also Hr’g Tr. 95:3-9.
38
DCAA found that Alabama Aircraft’s parent company had significantly decreased its
long term liabilities while increasing its working capital during the 2007 fiscal year. BX-1, Tab 3
(2008 DCAA Audit Report) at 10.
22
D. Adequate Notice
On May 4, 2007, the contracting officer in this procurement made a determination that
the three competitors who submitted an offer were each responsible. AR 46.32-7 (Contracting
Officer’s Determination of Responsibility). The closure of the sale of Pemco World Air occurred
on September 19, 2007, about a week after the original award of the contract to Boeing. Hr’g Tr.
33:2-3; AR 5-23 (Decision Document). In the months preceding the sale, Alabama Aircraft and
its parent endeavored to keep the Air Force informed about the pendency of the transaction. PX
4 (E-mail from Randy Shealy to Jean Carter and Lt. Col. Bernard Badami (July 11, 2007)); Hr’g
Tr. 76:6-10, 194:19 to 195:2. Prior to GAO’s decision of December 27, 2007 in Pemco Aeroplex
I, Alabama Aircraft informed both Colonel James Nally and Walt Spicer39 that “Pemco
Aeroplex’s name has changed to Alabama Aircraft Industries, Inc.-Birmingham” and that
Alabama Aircraft was now classified as a small business. PX 1 (E-mail from Glenn Hess,
Alabama Aircraft, to Colonel Nally (Dec. 12, 2007)); PX 2 (E-mail from Hess to Spicer (Dec. 12,
2007)). In addition to his role overseeing all KC-135 PDM work, Colonel Nally was a member
of the Source Selection Advisory Council for this procurement. See AR 84-7 (Nally Decl.).
Also, the Administrative Contracting Officer (“ACO”) had notice of the sale of Pemco World
Air and the corresponding name change. PX 3 (Defense Contract Management Agency Audit
Report Number 1201-2007R10601003 (Dec. 14, 2007)) at cover page.40 Notwithstanding the Air
Force’s ample notice of the pending sale of Pemco World Air, the Air Force did not initiate
inquiries into the effect, if any, the sale would have on Alabama Aircraft’s ability to perform
under its proposal. Hr’g Tr. 46:21 to 47:4.41
Alabama Aircraft, as it is presently constituted, has not been subject to a responsibility
determination. However, DCAA has conducted an audit evaluation of Alabama Aircraft since
Pemco World Air was sold. BX 1, Tab 3 (2008 DCAA Audit Report) at 1. Manifestly, a DCAA
audit report should not be equated to a contracting officer’s responsibility determination.42
39
Mr. Spicer is an Air Force official with responsibilities in the KC-135 Systems Program
office. See Hr’g Tr. 46:17-20.
40
The Defense Contract Management Agency was assigned the task of monitoring the
financial capability of Alabama Aircraft and its parent company. Hr’g Tr. 76:15-16.
41
The government’s reliance on the provision of the FAR codified at 48 C.F.R. § 42.1203,
requiring notification of the contracting officer to approve a name change or a successor-ininterest, is misplaced, as its own brief recognizes: “[w]e acknowledge that this FAR provision is
only binding upon an awardee, and Pemco never received the award.” Def.’s Mot. to Dismiss at
11.
42
The presence of adequate financial resources to support a contractual undertaking is
only one of the factors that the FAR instructs the contracting officer to take into account in
determining whether a contractor is responsible. See 48 C.F.R. § 9.104-1.
23
However, the Air Force and Boeing’s strongest objection to Alabama Aircraft’s ability to
perform the KC-135 PDM contract is the company’s financial position. Def.’s Mot. to Dismiss
at 2 (Alabama Aircraft “does not have the financial resources to perform.”); Intervening Def.’s
Mot. to Dismiss at 10 (Alabama Aircraft “does not have the financial resources necessary to
perform the KC-135 PDM contract[;] . . . , [a] small business cannot possibly be deemed a
responsible contractor to perform the instant contract.”). The claims of Boeing and the
government that the financial posture of Alabama Aircraft would preclude it from performing the
contract make relevant the findings of the recent DCAA audit report. The DCAA’s finding that
Alabama Aircraft’s financial position would allow it to “perform[] on its Government contracts
in the near-term” stands in stark contrast to the dire circumstances outlined in the briefs of
Boeing and the government. BX 1, Tab 3 (2008 DCAA Audit Report) at 2. Notably, DCAA
“examined Alabama Aircraft Industries, Inc.’s financial condition and capability to determine if
the contractor has adequate financial resources to perform on [g]overnment contracts in the
current and near-term (up to one year).” Def. Reply’s to Pl.’s Opp’n to Def.’s and Intervening
Def.’s Mots. to Dismiss, Declaration of Glenda Cothran (Technical Specialist Auditor with the
DCAA (Sept. 2, 2008)) at 2. DCAA’s audit report, combined with payments Alabama Aircraft
expects to earn on the KC-135 PDM contract, strongly support the conclusion that if awarded the
contract, Alabama Aircraft would have sufficient financial resources to perform the PDM work
at issue. Hr’g Tr. 82:10-22.43
E. Synopsis
Alabama Aircraft has standing to challenge the Air Force’s award of the KC-135 PDM
contract because it satisfies the definition of “interested party.” Despite its name change and the
sale of a sister subsidiary, Alabama Aircraft is the same legal entity as the company that
submitted its second final proposal revision in June 2007. Alabama Aircraft has the same
operational capabilities as its predecessor and due to the sale to the sister company it is in a
stronger financial position to perform the instant contract. Furthermore, the Air Force had ample
notice of the sale of the sister company and failed to initiate any inquiries about whether the sale
called into question Alabama Aircraft’s capabilities to perform the contract. The DCAA audit
report completed in June 2008, while not the equivalent of a responsibility determination,
confirms that for the near future Alabama Aircraft has sufficient financial resources to perform
under the contract. For these reasons, Alabama Aircraft continues to be an interested party with
standing to pursue this bid protest.
II. PROPRIETY OF THE AIR FORCE’S AWARD
On the merits, the court has focused on Alabama Aircraft’s primary challenges to the Air
Force’s award of a contract to Boeing. Those claims involve alleged organizational conflicts of
interest, erroneous past-performance ratings, and a flawed price-realism analysis. A secondary
43
In addition, Alabama Aircraft has and has had subcontracts for work on the C-130 and
P-3 airframes, as well as on a classified airframe. Hr’g Tr. 67:1 to 68:1, 80:8 to 83:12.
24
claim, that the Air Force selection officials had inadequate discussions with the offerors,
especially Pemco, about the terms of the solicitation, is subsumed in the price-realism discussion.
A. Organizational Conflicts of Interest
Alabama Aircraft claims that Boeing and its subcontractor, L-3, suffered from disqualifying organizational conflicts of interest (“OCI”) because the two companies had “[a]ccess to
nonpublic information and influence over the KC-135 PDM program.” Plaintiff’s Mot. for
Judgment on the Administrative Record at 19 (“Pl.’s Mot.”). Specifically, Alabama Aircraft
avers that Boeing’s role as a technical consultant and its work on other government contracts
involving the KC-135, when combined with L-3’s work at Tinker, provided it with access to
nonpublic information regarding the possibility of the Air Force’s changing the PDM cycle and
more detailed knowledge of the quantity of KC-135s needing contractor PDM. Id. at 20.
Additionally, Alabama Aircraft argues that Boeing’s and L-3’s other contracts with the
government provided the two companies with the opportunity to steer the government’s award of
the present contract to themselves. Id. at 23-24.
For Alabama Aircraft to prevail on its OCI claim, it must establish a violation of a
statutory or regulatory provision relating to a conflict of interest. See Galen Med. Assocs. v.
United States, 369 F.3d 1324, 1335 (Fed. Cir. 2004) (citing 18 U.S.C. § 208, 5 C.F.R.
§ 2635.403(c) (2003), 48 C.F.R. §§ 1-18 (2003)).44 Based on the FAR provisions governing
OCIs, there are three basic situations that give rise to an OCI: “biased ground rules,” “unequal
access to information,” and “impaired objectivity.” Systems Plus, 69 Fed. Cl. at 770 (quoting
Daniel I. Gordon, Organizational Conflicts of Interest: A Growing Integrity Challenge, 35 Pub.
Cont. L.J. 25, 32 (2005)). Alabama Aircraft alleges that each of these three OCIs was present
with this procurement insofar as Boeing was concerned and that the government failed to fulfill
its obligation in addressing the OCIs under the FAR. Pl.’s Mot. at 19-24.
The FAR mandates that the contracting officer “[i]dentify and evaluate potential
organizational conflicts of interest as early in the acquisition process as possible; and . . . [a]void,
neutralize, or mitigate significant potential conflicts before contract award.” 48 C.F.R.
§ 9.504(a). “The responsibility for determining whether a contractor has a conflict of interest and
should be excluded from competition rests with the contracting officer, who must exercise
‘common sense, good judgment, and sound discretion’ in assessing whether a significant
potential conflict exists and in developing appropriate ways to resolve it.” Greenleaf Constr.
Inc., B-293105.18, B-293105.19, 2006 WL 249626 at *11 (G.A.O. Jan. 17, 2006) (citing 48
C.F.R. §§ 9.504, 9.505; Aetna Gov’t Health Plans, Inc., B-254397, 1995 WL 449806, at *8-9
(G.A.O. July 27, 1995)). To prevail under the deferential review employed in examining agency
44
The FAR states that an OCI occurs when “because of other activities or relationships
with other persons, a person is unable or potentially unable to render impartial assistance or
advice to the Government, or the person’s objectivity in performing the contract work is or might
be otherwise impaired, or a person has an unfair competitive advantage.” 48 C.F.R. § 2.101.
25
contracting decisions, Alabama Aircraft cannot rely on “mere inference or suspicion of an actual
or apparent conflict” but must identify specific facts that support its allegations. Mechanical
Equipment Co., B-292789.2, 2003 WL 23782511, at *20 (G.A.O. Dec. 15, 2003).
Incumbent status by itself is insufficient to create an OCI. See Systems Plus, 69 Fed. Cl.
at 771 (citing Gulf Group, Inc. v. United States, 56 Fed. Cl. 391, 398 & n.13 (2003)); see also
Winstar Commc’ns, Inc. v. United States, 41 Fed. Cl. 748, 763 (1998) (citing Versar, Inc.,
B-254464.3, 1994 WL 120013, at *7 (G.A.O. Feb. 16, 1994)) (“[A]n offeror’s competitive
advantage gained through incumbency is generally not an unfair advantage that must be
eliminated.”). In the instant case, both Boeing and Alabama Aircraft are incumbents. Under the
current KC-135 PDM Bridge Contract, Boeing serves as the prime contractor and Alabama
Aircraft is its primary subcontractor. Furthermore, from 1994 to 2001, Alabama Aircraft served
as the prime contractor for providing KC-135 PDM. See Alabama Aircraft, 82 Fed. Cl. at 760.
Since 1969, Alabama Aircraft has been performing PDM on the KC-135 fleet and during that
time it has completed maintenance on over 2,400 aircraft, which it claims is more than any of its
competitors. Compl. ¶ 9.
Alabama Aircraft’s claims of an OCI are premised upon Boeing’s and L-3’s other
contracts with the Air Force relating to the KC-135 aircraft. Pl.’s Mot. at 20. The RFP for the
instant proposal identified Boeing as a potential technical consultant. AR 4-51 to 4-52
(Solicitation-Request for Proposal). The RFP provided that “Boeing will only be used for
technical questions which the Source Selection Team may not be able to answer and those
individuals at Boeing who are responsible for answering the questions will sign Non-Disclosure
Agreements.” AR 4-52 (Solicitation-Request for Proposal). Notwithstanding these
representations in the RFP, the government maintains that the Source Selection Team never
consulted with Boeing about any aspect of any offeror’s proposal. Def.’s Facts at 9 (citing AR
93.1-1658 (Contracting Officer’s Statement of Facts)). Because the Air Force never consulted
Boeing in connection with this procurement there was no need for any individual to sign the nondisclosure agreement. See Def.’s Facts at 9.
Another Boeing contract that Alabama Aircraft cites as creating a potential OCI is
Boeing’s engineering services contract for the KC-135 aircraft. See Pl.’s Mot. at 21-22. The
KC-135 aircraft was manufactured by Boeing. AR 84-8 (Nally Decl.). Under the engineering
services contract, Boeing was to examine alternative PDM concepts to ensure the continued
viability of the KC-135 aircraft. See, e.g., id.; Def.’s Facts at 9. Under this contract, “Boeing’s
input was limited to technical assistance and recommendations concerning the tasks that should
be performed at the four-year interval.” AR 84-8 (Nally Decl.). This contract involved proposed
revisions to the current five-year PDM cycle to shift to “light” PDM every four years and
“heavy” PDM every eight years. See supra, at 15. The four- and eight-year program is still at the
proposed stage and is being evaluated for possible implementation. See AR 84-8 (Nally Decl.).
It was not reflected in the solicitation at issue.
26
Lastly, Alabama Aircraft claims that Boeing’s subcontractor on its proposal, L-3, may
have passed along to Boeing information it obtained as a subcontractor working at Tinker Air
Force Base. Pl.’s Mot. at 23. L-3’s work at Tinker consists of serving as a subcontractor to
Battelle. AR 93.1-1658 (Contracting Officer’s Statement of Facts). In its role as subcontractor,
L-3 has been providing technical expertise regarding proposed modifications to Tinker’s organic
KC-135 PDM program. Id. (stating that L-3’s “expertise was being provided to improve
Tinker’s organic line, not to learn from the Government or to shape the Government’s contract
PDM effort”).45 According to the contracting officer, “L[-]3 has never been a consultant for the
SSET [Source Selection Evaluation Team], nor have they been asked by the team, either directly
or indirectly, for information, nor have they had any influence on the decision makers in this
source selection.” Id. And, to eliminate the potential for L-3 to share proprietary government
information with Boeing, the Air Force required L-3 employees to sign a non-disclosure
agreement before they were permitted to begin examining Tinker’s organic KC-135 PDM
program. Id.46
1. Biased ground rules.
“Biased ground rules” arise when a government contractor “has . . . set the ground rules
for another government contract by, for example, writing the statement of work or the
specifications.” Aetna Gov’t Health Plans, 1995 WL 449806, at *8; see 48 C.F.R. §§ 9.505-1,
9.505-2. Such a contractor would have an unfair competitive advantage because it would have
ample opportunity to tilt the competition in its favor and would possess a unique understanding
“of the agency’s future requirements.” Aetna Gov’t Health Plans, 1995 WL 449806, at *8.
Alabama Aircraft claims that Boeing’s engineering and service contract on the KC-135
and L-3’s involvement as a subcontractor in evaluating the Air Force’s in-house KC-135 PDM
program allowed them to “set the ground rules for this procurement.” Pl.’s Mot. at 24.
However, there is no evidence in the administrative record indicating that Boeing or L-3 was
involved in either drafting the statement of work or establishing the specifications for this
procurement. Accordingly, there are no “hard facts” in the administrative record supporting
Alabama Aircraft’s claim of a “biased ground rules” OCI. See CACI, Inc.-Fed. v. United States,
719 F.2d 1567, 1582 (Fed. Cir. 1983). Thus, Alabama Aircraft has failed to sustain its burden of
proving a “biased ground rules” OCI.
45
In addition, L-3 provides maintenance services for the Air Force on a sister aircraft, the
RC-135, at a facility located in Greenville, Texas. Hr’g Tr. 136:2-20.
46
The non-disclosure agreement provides that L-3 employees “agree[d] not to use data
obtained from the Government or from another contractor working on [this contract] for any
purpose other than performance under this contract, nor . . . make this information available to
anyone not assigned to work on this contract. . . . [A]ny other use of th[ese] data is expressly
forbidden.” AR 93.1-1658 (Contracting Officer’s Statement of Facts).
27
2. Impaired objectivity.
An “impaired objectivity” OCI occurs where a government contractor’s “work under one
government contract could entail its evaluating itself, either through an assessment of
performance under another contract or an evaluation of proposals.” Aetna Gov’t Health Plans,
1995 WL 449806, at *9 (citing 48 C.F.R. § 9.505-3). Alabama Aircraft claims that an “impaired
objectivity” OCI existed because Boeing’s and L-3’s contracts allowed them to simultaneously
serve as both competitors and advisors in this procurement. Pl.’s Mot. at 23. However, L-3’s
work as a subcontractor at Tinker and Boeing’s engineering services contract did not involve
evaluations of proposals responding to the RFP at issue. And, Boeing’s proposed role as a
consultant for this procurement never actually materialized. Def.’s Facts at 9 (citing AR 93.11658 (Contracting Officer’s Statement of Facts)). As a result, Alabama Aircraft has failed to
sustain its burden of identifying the necessary specific facts to support its claim of an “impaired
objectivity” OCI.
3. Unequal access to information.
Alabama Aircraft claims that Boeing had access to nonpublic information concerning
variations from the Air Force’s BEQ of the number of KC-135s needing contractor PDM. Pl.’s
Mot. at 21. Specifically, Alabama Aircraft contends that Boeing’s and L-3’s other contracts
relating to the KC-135 aircraft caused them to know that more KC-135s would need contractor
PDM than the number represented by the Air Force’s BEQ. Id. at 22. Additionally, Alabama
Aircraft avers that Boeing’s engineering contract provided it with nonpublic information
regarding the potential that the Air Force might implement changes in the current PDM cycle
during the instant contract’s option years and that this knowledge allowed Boeing to tailor the
pricing terms of its proposal. Id. at 21-22. Boeing resists these allegations, asserting that it had
no such nonpublic information and that the administrative record does not support Alabama
Aircraft’s claims. Intervening Def.’s Cross-Mot. for Judgment on the Administrative Record at
29-30 (“Intervening Def.’s Cross-Mot.”).
An “unequal access to information” OCI has been described as a situation where
a firm has access to nonpublic information as part of its performance of a government
contract and where that information may provide the firm a competitive advantage in a
later competition for a government contract. FAR § 9.505-4. In these “unequal access
to information” cases, the concern is limited to the risk of the firm gaining a competitive
advantage; there is no issue of bias.
Aetna Gov’t Health Plans, 1995 WL 449806, at *9. To prevail on an OCI claim of “unequal
access to information,” it is axiomatic that the government contractor must have access to “the
kind of specific, sensitive information that would create an OCI.” See Systems Plus, 69 Fed. Cl.
at 772. Thus, for a bid protester to succeed on an “unequal access to information” OCI claim, it
must demonstrate “the awardee was ‘in the unique position of [] having access to information to
which no other offeror had access.’” Id. at 771 (quoting Johnson Controls World Servs., Inc., B28
286714.2, 2001 WL 122352, at *5 (G.A.O. Feb. 13, 2001) (finding that an “unequal access to
information” OCI existed when the incumbent had access to a database that provided more
detailed information about the procurement than was available in the public domain)).
In recent years, Tinker Air Force Base has sought to increase the number of KC-135s
maintained at its facility, in part to satisfy a “50/50” objective of the Department of Defense that
50 percent of the work be accomplished at an organic facility rather than through a contractor.
See Hr’g Tr. 145:4-7; AR 65-2 (Air Force Talking Paper). L-3’s involvement as a subcontractor
in improving Tinker’s organic PDM process was directed toward improving Tinker’s PDM
operations and achieving that goal. The Air Force has repeatedly stated that the BEQ in this
procurement is 24 aircraft per year. AR 46.12-1581 (Amendment No. 4 to RFP (May 31, 2006)
(restating BEQs)); AR 84-7 (Nally Decl.); Tr. 144:16-18.47 The maximum quantity stated was
60 aircraft per year, see AR 46.12-1580 (Request for Proposal, Amendment 4 (May 31, 2006))
(“The maximum quantity of 60 A/C will remain unchanged.”), but that quantity was
subsequently revised downward to 48 aircraft per year. AR 46.12-1584 (Request for Proposal,
Amendment 5 (July 12, 2006)).
It was well known to Alabama Aircraft and Boeing, both of whom were and are
performing under the current bridge contract, that Tinker was having difficulty in meeting its
targeted goals for organic PDM. Among other things, to increase its efficiency and productivity,
Tinker would have to modify its hangar by adding additional doors, but such a change would be
problematic, because the hangar is listed as an historic building. Hr’g Tr. 137:17 to 138:16.
Both Boeing and Alabama Aircraft participated in briefings where PDM needs were addressed by
those involved in the activity, and they both accordingly knew of Tinker’s problems. See AR 8413 (Agency Request in B-310372.4, Ex. 3 (Programmed Depot Maintenance Combined Program
Management Review (March 2007) at 6-7)); AR 84-17 to 84-21 (id., Ex. 4 (Briefing Slides:
47
A court reviewing an agency’s contracting decisions presumes that the government
officials acted in good faith and with honesty. See, e.g., Spezzaferro v. Federal Aviation Admin.,
807 F.2d 169, 173 (Fed. Cir. 1986). To overcome that presumption, Alabama Aircraft would
have to point to specific evidence that during the procurement the Air Force knew its BEQ was
more than 24. See Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed.
Cir. 2002). In support of its argument that the BEQ underestimated the Air Force’s contractor
PDM needs, Alabama Aircraft relies heavily upon a slide from a Program Management Review
presentation that occurred a few days after the confirmation of the award to Boeing. See AR 7426 (Pemco’s Supplemental Bid Protest, B-310372.4 (Mar. 21, 2008)). Alabama Aircraft also
seeks to have admitted into the administrative record a declaration from their representative at
the March 2008 Program Management Review concerning the potential need for increased
contractor PDM. Pl.’s Mot. to Supplement the Administrative Record, Ex. A (Decl. of Jim
Tuck) (Aug. 7, 2008). Without more, this indicator is insufficient to contravene the
government’s repeated statements that the BEQ remains 24. In that respect also, Mr. Tuck’s
declaration will not be added to the administrative record.
29
Four/Eight Year PDM Program)). Nonetheless, Alabama Aircraft sees confirmation of their
allegation in Boeing’s pricing structure, which had a [***] price for performing PDM for [***]
aircraft than it did for [***] aircraft. See AR 93.1-1110 (Boeing Second Final Proposal Revision
Pricing Model). Alabama Aircraft claims Boeing’s insider knowledge of the Air Force’s true
contractor PDM needs allowed it “to price PDM at the BEQ pricing band relatively low, in order
to win the contract, with a relatively higher price at the [***] quantity band, so that it would be
paid more.” Pl.’s Mot. at 22. That claim is unavailing. The record does not establish that
Boeing had nonpublic information about the “true” quantity of PDM work the Air Force would
require, such that it could shape its offer in an advantageous way. Both Boeing and Alabama
Aircraft had an incumbent’s knowledge of the circumstances involved with the organic PDM line
at Tinker and what that meant for the related PDM work to be carried out by a contractor.
Alabama Aircraft’s argument that Boeing possessed nonpublic information about
potential changes to the PDM cycle rests on a different foundation. It is undisputed that Boeing
was assisting the Air Force in exploring alternatives to the current five-year PDM program. Pl.’s
Mot. at 21; Def.’s Facts at 9-10. Boeing’s engineering services contract with the Air Force
required Boeing to perform “the day to day maintenance of the KC-135 weapon system platform
and to develop modifications to the KC-135 to ensure the continued service life of the KC-135.”
Def.’s Facts at 9.48 Alabama Aircraft claims that Boeing’s work under this contract in exploring
potential alternatives to the current PDM cycle permitted it to obtain nonpublic information
about the likelihood that the Air Force would switch to another cycle during the life of the
contract at issue. Pl.’s Mot. at 21. As Alabama Aircraft would have it, this inside information
would “allow Boeing to, among other things, propose more aggressive pricing through a
reduction in labor hours for [***] years in the contract.” Id. at 22. Alabama Aircraft claims that
Boeing’s decision to embrace [***] learning for [***] and to offer significant price discounts in
the [***] years of the contract is evidence that Boeing had access to nonpublic information about
the future work requirements for the PDM program. Id.
In its response to these allegations, Boeing relies on the declaration submitted by Colonel
Nally in the GAO proceeding that addressed Alabama Aircraft’s claims. Intervening Def.’s
Cross-Mot. at 30. However, Boeing’s reliance on that declaration is misplaced. The court in its
prior opinion expressly stated that Colonel Nally’s declaration was “a post hoc addendum to the
contemporaneous administrative record.” Alabama Aircraft Indus., 82 Fed. Cl. at 768 n.12.
Nonetheless, despite the inapplicability of Colonel Nally’s declaration, Alabama Aircraft
has failed to meet its burden of identifying specific facts showing that Boeing had an “unequal
access to information” OCI. Both Boeing and Alabama Aircraft were present at a March 2007
Management Review that discussed the potential change to four- and eight-year PDM cycles.
48
To the extent that Boeing’s engineering services contract with the Air Force is a design
and development contract, the prohibitions on OCI contained in the FAR are inapplicable. 48
C.F.R. § 9.505-1(a); see also Vantage Assocs., Inc. v. United States, 59 Fed. Cl. 1, 11-12 (2003).
30
AR 84-13 (Agency Request in B-310372.4, Ex. 3 (Programmed Depot Maintenance Combined
Program Management Review (March 2007) at 6-7); AR 84-17 to 84-21 (id., Ex. 4 (Briefing
Slides: Four/Eight Year PDM Program)). Thus, both Boeing and Alabama Aircraft had notice
prior to the submission of their second final proposal revisions that the Air Force was
considering altering the current PDM cycle. It is well-established that an appropriate measure for
an agency to take to remedy a potential “unequal access to information” OCI is to disclose the
nonpublic information. See Sierra Military Health Servs., Inc. v. United States, 58 Fed. Cl. 573,
583 (2003). Here, the Air Force’s briefing in March 2007 served to alert both competitors to the
Air Force’s internal deliberations that previously may have been known only to Boeing. That
disclosure served to level the playing field.
In sum, Alabama Aircraft has failed to sustain its burden of identifying the requisite facts
in the administrative record to support its claim that Boeing had an “unequal access to
information” OCI.
B. The Air Force’s Evaluation of Past Performance.
Under the “past performance” criterion of the RFP, the Air Force’s Performance
Confidence Assessment Group (“PCAG”) undertook to evaluate the likelihood that each
competitor for the contract could successfully perform under the terms of its offer given its prior
and present performance on relevant government contracts. See AR 4-83 (Solicitation-Request
for Proposal). The Air Force specifically indicated that it would evaluate each “[o]fferor’s
demonstrated record of contract compliance in supplying products and services that meet user’s
needs, including cost and schedule.” Id. Prior contracts were weighed for relevancy according to
how closely they correlated to the type of effort, complexity, and essential components involved
in the proposed contract. Id. The Air Force sought to examine “general trends in the contractor’s
performance,” id., and to develop “an overall evaluation of [o]fferor performance” with relevant
contracts. AR 4-84 (Solicitation-Request for Proposal) (emphasis added).
An offeror could receive various performance confidence assessments ranging from “high
confidence” to “no confidence.” AR 4-84 (Solicitation-Request for Proposal). An assessment of
“satisfactory confidence” would indicate that “[b]ased on the [o]fferor’s performance record, the
government has confidence the [o]fferor will successfully perform the required effort. Normal
contractor emphasis should preclude any problems.” Id. A lower assessment of “little
confidence” would indicate that “[b]ased on the [o]fferor’s performance record, substantial doubt
exists that the [o]fferor will successfully perform the required effort.” Id.
Ultimately, the Air Force assigned both Boeing and Alabama Aircraft an overall
confidence assessment of “satisfactory” based upon their past performance. AR 5-19 (Decision
Document). Although both offerors received a rating of “satisfactory” confidence, the Air Force
“considered Pemco to have a better past performance record than Boeing.” AR 5-22 (Decision
Document). The Air Force found that Boeing was “currently delivering aircraft on-time and with
acceptable quality on the KC-135 PDM, KC-10, and C-17 GSP [Globemaster Sustainment
31
Partnership] programs,” and thus declined to lower Boeing’s assessment from “satisfactory
confidence” to “little confidence,” despite finding Boeing’s performance on these three contracts
“troubling.” AR 5-19 (Decision Document). Alabama Aircraft contends that the Air Force erred
in finding that Boeing’s past performance satisfied the standards for “satisfactory confidence.”
Pl.’s Mot. at 26. Alabama Aircraft asserts that the Air Force deviated from the criteria set forth
in the RFP and the FAR by “narrowly focus[ing] on technical performance issues, ignor[ing] the
critical issues of ethics and integrity, and fail[ing] to perform an ‘overall evaluation’ of Boeing’s
past performance.” Id. at 25.
1. Boeing’s prior relevant contracts.
The Air Force evaluated five contracts that it found to be relevant to Boeing’s past
performance. AR 33-1 (Boeing Past Performance Worksheets). Several of these contracts were
deemed to be “very relevant;” they include Boeing’s 1998 KC-135 PDM contract, id., on which
Alabama Aircraft focuses the court’s attention. Alabama Aircraft cites [***] in Boeing’s
management and modification of this contract. AR 33-6 (Boeing Past Performance Worksheets);
Pl.’s Mot. at 10-12. In addition, the Air Force evaluated alleged [***] by Boeing with respect to
two other specific contracts: the KC-10 Contractor Logistics Support (“CLS”) contract, and the
C-17 Globemaster Sustainment Partnership (“GSP”) contract. AR 33-5, 33-9, 33-48 (Boeing
Past Performance Worksheets). The issues are described in a letter dated May 17, 2007 from Air
Force Deputy General Counsel [***]. See AR 6-271 to AR 6-272 (Proposal Analysis
Report/Price Competition Memorandum, Ex. A (“ [***] Letter”)).
Boeing acknowledges that “a review of past performance reveals [***] problems on the
‘Very Relevant’ KC-135 PDM contract.” Def.’s Facts at 29-30; see also AR 2-8 to 2-9
(Contracting Officer’s Statement of Facts). The KC-135 contract was awarded to Boeing by the
Air Force on October 9, 1998. AR 3-59 (DODIG Report). Boeing submitted a $119 million
request for equitable adjustment of this contract on May 7, 2001, and it was ultimately paid $35.8
million upon the settlement of this request. AR 3-62 (DODIG Report). Air Force Deputy
Assistant Secretary Darlene Druyun was heavily involved in the decision to approve the
equitable-adjustment settlement and to eliminate the Air Force’s review of O&A work requests
of less than 75 hours. Id. Rather than wait for the final recommendations of a DCAA review of
Boeing’s proposed request, the Air Force, under Ms. Druyun’s influence, “went ahead and
submitted an offer to [Boeing] to pay the full $35.8 million settlement” and to approve the
contract restructuring. Id. The DODIG Report concluded that “[h]ad the AFNT [Air Force
Negotiating Team] used the final DCAA recommended rate adjustments, the REA [request for
equitable adjustment] settlement potentially could have been reduced by another $4.5 million.”
AR 3-63 (DODIG Report).
The DODIG report found that Boeing “appeared to split contract tasking into work units
smaller than 75 hours presumably to avoid justifying the reasonableness of the work to DCMA
[Defense Contract Management Agency] personnel.” AR 3-63 (DODIG Report). Boeing had
submitted 4,211 O&A work requests of fewer than 75 hours during the first three quarters of FY
32
2001, but then sought 88,524 such work requests during FY 2002. Id. A DCMA audit reviewing
the results under KC-135 contract found indications of “deliberate inflation of man-hour
estimates.” AR 33-44 (Boeing Past Performance Worksheets).
The government attributes the problems with the KC-135 contract to both Boeing and
Pemco. Def.’s Facts at 30-31 (citing AR 2-8 to 2-9 (Contracting Officer’s Statement of Facts)).
However, the primary issue with the negotiation of the settlement of the KC-135 contract was
Boeing’s improper relationship with Air Force Deputy Assistant Secretary Darlene Druyun. See
AR 3-59 (DODIG Report). Ms. Druyun
wielded influence over billions of dollars in contract awards, modifications and
settlements. In 2000, Boeing, at Druyun’s request, hired Druyun’s daughter and future
son-in-law. Then in 2002, Sears, who at the time was Boeing’s CFO, recruited Druyun
for an executive position with the company. During this period, 2000 through 2002,
Druyun was responsible for dozens of Boeing contracts, including the controversial $23
billion procurement to lease a fleet of KC-767 aerial refueling tankers that has since been
canceled.
AR 78-136 (Department of Justice Press Release (July 30, 2006)) (announcing civil settlement
with Boeing). These abuses led to an Interim Administrative Agreement between the Air Force
and Boeing and civil and criminal settlement agreements. Moreover, the Air Force’s attempt to
link Pemco to the problems with the KC-135 contract is contradicted by the DCMA audit, which
found that “Boeing has demonstrated a somewhat hands-off management of PEMCO . . . Boeing
and PEMCO operated almost as two independent organizations up until approximately 2005. . . .
A lack of communication between Boeing and PEMCO is indicated, supported by data that
suggests that PEMCO was not included in daily standup meetings with Boeing and the
Government until 2004-2005.” AR 33-44 (Boeing Past Performance Worksheets). In short,
Boeing was primarily responsible for the problems with the KC-135 contract.
The Air Force also identified a series of less severe problems concerning some of
Boeing’s other relevant contracts. On all of the [***] inspected by DCMA, there were
significant problems identified with the [***]. Def.’s Facts at 38; AR 33-9 (Boeing Past
Performance Worksheets). And, a letter from Deputy General Counsel [***] found evidence to
support allegations that Boeing “ [***].” AR 6-271 ( [***] Letter). The Air Force concluded
that these problems “ [***] and that Boeing “ [***] them.” AR 33-9 (Boeing Past Performance
Worksheets).
Deputy General Counsel [***]’s letter reports that with respect to the KC-135 and C-17
contracts, “Boeing acknowledges that [it] [***].” AR 6-271 ( [***] Letter). Regarding [***],
Boeing admitted that “ [***].” AR 93.1-1466 (Boeing’s Response to [***] Letter (June 22,
2007)). In its PCAG Report, the Air Force described Boeing’s conduct on this contract as “
[***].” AR 33-56 (Boeing Past Performance Worksheets).
33
2. The Air Force’s evaluation.
The Air Force based its confidence assessment on information from four sources: the
offerors’ own records of past and present performance, Contractor Performance Assessment
Reports (CPARs), questionnaires sent to program managers and contracting officers, and
interviews with program managers and contracting officers. See AR 6-17 (Proposal Analysis
Report/Price Competition Memorandum). Alabama Aircraft maintains that the Air Force failed
to analyze proper records in its source selection process and thus failed to discern “the notion that
Boeing’s pattern of misconduct clearly demonstrated its unsatisfactory history of past
performance.” Pl.’s Reply in Support of its Mot. for Judgment . . . and Opp’n to Def.’s and
Intervening Def.’s Cross-Mots. (“Pl.’s Reply”) at 32. Alabama Aircraft additionally claims that
the Air Force “blatant[ly] disregard[ed] . . . credible, accessible, and relevant information
regarding past performance” that it could have obtained by “picking up the telephone and
speaking with” parties such as the Air Force’s [***]. Id. at 33. The government responds that
“the record is replete with documentation . . . that the PCAG’s review considered the negative
past performance information . . . [and] adjusted Boeing’s Past Performance score accordingly.”
Def.’s Cross-Mot. at 23 (citing AR 75-150 (Hearing Transcript, B-310372.1)). In making its
determination of satisfactory confidence in Boeing’s past performance, the Air Force PCAG
examined 14 Boeing contracts, 51 CPARs, and 35 questionnaire responses. AR 33-1 (Boeing
Past Performance Worksheets). The Air Force evaluated Boeing’s past performance in
accordance with the criteria set forth in Section M of the RFP. The PCAG chair and the
contracting officer considered the problems raised in the [***] letter and in Boeing’s response to
that letter, with respect to both the past performance determination and the related but separate
responsibility determination. See AR 75-11 to 75-12, AR 75-28, AR 75-47 to 75-48, AR 75-104
to 75-107, AR 75-150 to 75-154 (Hearing Transcript, B-310372.1). The PCAG interviewed the
administrative and procurement contracting officers of the KC-135, KC-10, and C-17 programs
regarding the negative past performance issues addressed above. AR 75-54 to 75-55 (Hearing
Transcript, B-310372.1). And, the Air Force explicitly asked Boeing “to provide additional
information regarding their ethics and integrity in regard to the [KC-135 and KC-10] contracts,”
among other things, by sending evaluation notices to Boeing on these issues. AR 93.1-1643
(Contracting Officer’s Statement of Facts).
The problems that arose with the KC-135 PDM, KC-10 PDM, and C-17 GSP contracts
were, the government contends, addressed by the Air Force’s PCAG “primarily in the context of
program management, [as] one aspect of the larger integrated past performance assessment
within a larger still overall source selection evaluation.” Def.’s Reply at 10. During this process,
the negative performance history associated with these contracts was incorporated into Boeing’s
performance ratings on these individual contracts. See AR 33-5, 33-30, 33-48 (Boeing Past
Performance Worksheets). On the past performance subfactor of Depot Maintenance, Boeing’s
rating on the KC-10 contract was reduced from “ [***]” to “ [***],” and on the subfactor of
Program Management, Boeing’s rating on the KC-10 contract was reduced from “ [***]” to “
[***].” AR 75-151 (Hearing Transcript, B-310372.1). The PCAG also reduced Boeing’s
34
Program Management rating on the KC-135 contract from “ [***] ” to “ [***].” Id. The Air
Force never changed Boeing’s rating for Program Management on the C-17 contract. AR 75-158
(Hearing Transcript, B-310372.1).
In the PCAG’s final assessment of Boeing’s past performance, the Air Force emphasized
Boeing’s problems under prior relevant contracts:
[***].
AR 6-75 (Proposal Analysis Report/Price Competition Memorandum). Before granting Boeing
the confidence assessment of “satisfactory,” the Air Force summarized its negative past
performance assessment of the KC-135, KC-10, and C-17 contracts:
Evidence suggests that while Program Management performance improves
over time, issues are addressed only after some level of official [g]overnment
intervention and recent data indicates a significant, negative trend in multiple
aspects of Program Management.
AR 6-76 (Proposal Analysis Report/Price Competition Memorandum).
3. Relationship of the Air Force’s “responsibility” determination and its past
performance evaluation.
Alabama Aircraft objects to what it characterizes as the Air Force’s “irrational conclusion
that the Boeing/Druyun ethical misconduct on the KC-135 PDM contract was somehow
irrelevant” to the past performance assessment and claims that “nowhere in the PCAG report is
the overall impact of Boeing’s pattern of ethics and compliance lapses expressly considered.”
Pl.’s Mot. at 15. These claims bear on the relationship of the Air Force’s “responsibility”
determination with its past performance evaluation.
The RFP provided that the Air Force, in its overall evaluation of past performance,
would “focus[] on . . . the Mission Capability subfactors.” AR 4-84 (Solicitation-Request for
Proposal). Nonetheless, in the RFP, the Air Force:
reserve[d] the right to evaluate a contractor[’]s past performance that may not [be]
directly linked to Mission Capability (e.g., contractor’s record of conforming to contract
requirements and to standards of good workmanship; the contractor’s record of
forecasting and controlling costs; the contractor’s adherence to contract schedules,
including administrative aspects of performance; the contractor’s history of reasonable
and cooperative behavior and commitment to customer satisfaction; and in general, the
contractor’s business-like concern for the interest of the customer).
35
AR 4-84 (Solicitation-Request for Proposal). Alabama Aircraft infers a requirement to consider
ethics and integrity issues in past performance from the fact that the RFP instructed the Air Force
to review “contract compliance” and the “probability of successfully performing.” Pl.’s Reply at
30 (citing AR 4-83 (Solicitation-Request for Proposal)). The FAR, however, draws a distinction
between a past performance evaluation and a responsibility determination, providing that
[p]ast performance information is one indicator of an offeror’s ability to perform the
contract successfully. The currency and relevance of the information, source of the
information, context of the data, and general trends in contractor’s performance shall
be considered. This comparative assessment of past performance information is separate
from the responsibility determination required under Subpart 9.1.
48 C.F.R. § 15.305(a)(2)(i) (emphasis added). The responsibility determination to be made
under FAR Subpart 9.1 implements the government’s policy that “[p]urchases shall be made
from, and contracts shall be awarded to, responsible prospective contractors only.” 48 C.F.R.
§ 9.103(a). One prong of the responsibility determination involves an inquiry into whether the
prospective contractor has “a satisfactory record of integrity and business ethics.” 48 C.F.R.
§ 9.104-1(d).
The PCAG described the Darlene Druyun matter “as a closed issue outside of past
performance . . . outside of our PCAG perspective in regards to how we evaluate a contract.” AR
75-185 & 186 (Hearing Transcript, B-310372.1). The PCAG reviewer described the difficulty of
assessing an ethics issue within the range of mission capability factors typically associated with
past performance evaluations:
When we look at our mission capability subfactors trying to -- trying to pigeon hole that
whole issue into that was a little problematic. How do I fit Darlene Druyun into transition
or program management or small business? It didn't -- the closest it would ever reach
would be program management, and that would be a far cry, especially considering the
way we evaluated program management against each individual offeror.
AR 75-186 (Hearing Transcript, B-310372.1).
Alabama Aircraft objects that “[t]he Air Force’s failure to review Boeing’s Past
Performance with regard to the Druyun [m]atter and to even obtain any evidence with which to
review this matter is an independent and sufficient ground to sustain a protest.” Pl.’s Reply at
31. But the Federal Circuit has articulated a standard under which “the test for reviewing courts
is to determine whether ‘the contracting agency provided a coherent and reasonable explanation
of its exercise of discretion.’” Impresa Construzioni, 238 F.3d at 1332-33 (quoting Latecoere
Int’l, Inc. v. United States Dep’t of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)). Here, the court
finds that the Air Force was within its discretion to limit its analysis of the mission capability
subfactors to the issues traditionally addressed in past performance evaluations. Additionally, the
court finds that the Air Force has provided a reasonable explanation for why and how it
36
considered ethics and integrity issues in the context of its responsibility determination. See 48
C.F.R. § 9.104-1 (“To be determined responsible, a prospective contractor must . . . (d) [h]ave a
satisfactory record of integrity and business ethics.”).
4. Boeing’s implementation of its Interim Administrative Agreement with the United
States.
In the aftermath of the Druyun-related events and other controversies involving Boeing’s
prior contracts with the Air Force, Boeing entered into an Interim Administrative Agreement
with the Air Force on September 22, 2004. Def.’s Facts at 35; AR 79-77 (Interim Administrative
Agreement). In addition, Boeing paid $565 million as part of a civil settlement and $50 million
as part of a criminal settlement to resolve the Druyun matter. Def.’s Facts at 33. The Interim
Administrative Agreement imposed several requirements upon Boeing, including the retention of
a group to conduct an independent review of Boeing’s ethics and compliance policies, the
appointment of a special compliance officer, and the submission of quarterly reports to the Air
Force. AR 79-90 to 79-93 (Interim Administrative Agreement).
Alabama Aircraft argues that the compliance program and the other legal requirements
under the Interim Administrative Agreement prevent Boeing from satisfying the RFP’s definition
of “satisfactory confidence,” which required “normal contractor emphasis,” because
whether it is termed “extraordinary,” “heightened,” “elevated,” “intense,” “concentrated,”
or “special,” the indisputable fact is that the I[nterim Administrative Agreement] imposed
on Boeing’s performance of its contracts something more than “normal contractor
emphasis.”
Pl.’s Reply at 22. Alabama Aircraft contends that heightened contractor emphasis applied to
each of the contracts rated as “very relevant” in the Air Force’s review of Boeing’s past
performance. Id. at 22-23.
The definition of the “satisfactory” confidence assessment in the RFP specifies that
“[n]ormal contractor emphasis should preclude any problems.” AR 4-84 (Solicitation-Request
for Proposal). Alabama Aircraft construes this definition to “preclude application of the
‘Satisfactory’ rating to a contractor” who is experiencing “‘any problems.’” Pl.’s Reply at 21.
The government responds that the criterion means, in “laymen’s terms, can they do the work . . .
can the contractor do what we’re asking them to do.” Hr’g Tr. 294:19, 297:10-11. The
government argues that a confidence assessment below “satisfactory” applies “if substantial
doubts exist that the offeror will successfully perform the required effort.” Hr’g Tr. 297:16-18.
The Air Force neither adopted nor applied the “preclude any problems” criterion urged by
Alabama Aircraft. The PCAG Chair indicated that “there’s positive and negative past
performance in all offerors.” AR 75-159 (GAO Transcript, B-310372.1). In this instance, the Air
Force was well aware of the blemishes attendant to Boeing’s prior work on aircraft maintenance
37
contracts, and it took those flaws into account in its past performance rating of Boeing. See AR
33-65 to 33-71 (Boeing Past Performance Worksheets). Nor should the Air Force have
concluded that the Interim Administrative Agreement precluded Boeing from satisfying the
RFP’s requirement of “normal contractor emphasis.” That Agreement was prompted by specific
misconduct, but the resulting compliance program has a counterpart in the FAR. See 48 C.F.R.
§ 522.203-13 (mandating the institution of compliance programs for large contractors as part of
the Contractor Code of Business Ethics and Conduct). Such ethics and compliance programs do
not “prohibit allegations of misconduct from arising; they require contractors like Boeing to have
systems in place to investigate and report them when they do arise.” Intervening Def.’s Reply at
17. Although many of the problems with Boeing’s contracts occurred after the implementation
of the Interim Administrative Agreement, the Agreement is insufficient support for Alabama
Aircraft’s contention that the Air Force erred in awarding Boeing a past performance rating of
“satisfactory.”
The court finds that the blemishes in Boeing’s prior work were fully taken into account
by the Air Force and that the Air Force was not arbitrary in assigning Boeing a “satisfactory”
confidence assessment, albeit at the lower end of the “satisfactory” range. See AR 5-22
(Decision Document). The Air Force’s decision to assign Boeing this confidence assessment
was within the “zone of acceptable results in a particular case” because it resulted from “a
process which ‘consider[ed] the relevant factors’ and [wa]s ‘within the bounds of reasoned
decision making.’” JWK Int’l Corp. v. United States, 52 Fed. Cl. 650, 654 n.8 (2002) (quoting
Baltimore Gas & Elec. Co. v. Natural Res. Def. Council, Inc., 462 U.S. 87, 105 (1983)), aff’d, 56
Fed. Appx. 474 (Fed. Cir. 2003).
C. The Air Force’s Consideration of Price
Alabama Aircraft further contests the award to Boeing on the ground that the Air Force’s
price-realism analysis was flawed. Pl.’s Mot. at 31.49 Alabama Aircraft focuses primarily upon
Boeing’s decision to project and apply [***] learning in its final proposal to reduce its overall
price and the Air Force’s price-realism analysis that accepted that price. Id. at 31-32. Alabama
Aircraft emphasizes that the Air Force failed to account for the increased maintenance needs of
an aging KC-135 fleet when it evaluated Boeing’s projected efficiency gains over [***]. See id.
at 34-35.
FAR lacks an explicit directive to contracting agencies mandating the use of any
particular analytical tool in evaluating the reasonableness and realism of an offeror’s price. See
48 C.F.R. § 15.404-1(b)-(e). In these circumstances, courts have accorded contracting agencies
considerable leeway in evaluating price. See, e.g., Honeywell, Inc. v. United States, 870 F.2d
644, 648 (Fed. Cir. 1989); International Outsourcing Servs. v. United States, 69 Fed. Cl. 40, 48
49
The discussion of the Air Force’s price-realism analysis will address Alabama Aircraft’s
allegations regarding the failure of the agency to hold adequate discussions regarding the role
aging aircraft played in the solicitation.
38
(2005) (stating that “‘the nature and extent of an agency’s price realism analysis are matters
within the agency’s discretion’”) (citation omitted)). However, that discretion can be abused.
An agency’s price-realism analysis lacks a rational basis if the contracting agency, for example,
made “irrational assumptions or critical miscalculations.” OMV Med., Inc. v. United States, 219
F.3d 1337, 1344 (Fed. Cir. 2000).
The RFP stated that the government would employ a “best value approach” in
determining the winner of the solicitation. AR 4-78 (Solicitation-Request for Proposal). This
approach seeks to award the contract “to an offeror who gives the Air Force the greatest
confidence it will best meet our requirements affordably.” Id. Although the combination of the
other three evaluation factors were weighted more heavily, price was still a substantial factor in
determining which offeror would be awarded the contract. AR 4-79 (Solicitation-Request for
Proposal). The fact that Boeing’s total evaluated price was approximately $15 million less than
Alabama Aircraft’s price was one of the main reasons why the Air Force awarded the contract to
Boeing. AR 5-22 (Decision Document); AR 59-27 (Source Selection Decision Document).50
The RFP required the offerors to provide “labor, fringe benefits, overhead and G&A
[General and Administrative] rates” to enable the Air Force to conduct a price-realism analysis.
AR 4-63 (Solicitation-Request for Proposal); see also AR 4-86. In this instance, the offerors also
provided additional information to support their learning curves that projected greater
efficiencies as the work progressed. See supra, at 8-10, 14. This approach is sanctioned by the
FAR, which recognizes that a price-realism determination may require the contracting officer to
obtain “information other than cost or pricing data,” 48 CFR § 15.403-3 (heading, capitals
omitted), “but the contracting officer should not obtain more information than is necessary.” 48
C.F.R. § 15.403-3(a)(1).
Price-realism analysis is a well-established analytical tool in government contracting,
primarily designed to weed out offers that reflect an unrealistically low price and thus put
performance at risk. See Ralph C. Nash & John Cibinic, Price Realism Analysis: A Tricky Issue,
12 No. 7 Nash & Cibinic Rep. ¶ 40 (1998). As Professors Nash and Cibinic commented:
An unrealistically low price can indicate that the offeror does not
understand the work to be done. However, such a conclusion is not
inevitable because the offeror might have intentionally offered a low
price to win the competition (the so-called “buy-in”). In either case,
acceptance of an unrealistically low price with a resulting lack of
sufficient funds in the contract – may pose a risk of poor performance
or even a lack of capability to perform (nonresponsibility).
Id. at 108.
50
This price differential was slightly over one percent of the projected $1.2 billion cost of
the contract over its term, including option years.
39
The Air Force’s price-realism analysis was conducted in a setting that emphasized a high
level of technical performance in performing KC-135 PDM. See AR 6-5 (stating this is a
“performance-based acquisition”). The offeror’s ability to deliver satisfactory PDM work was
addressed by evaluating proposal risk for each of the five subfactors comprising the mission
capability factor and by past performance. AR 4-79 (Solicitation-Request for Proposal). The
proposal risk assessment analysis examined “the risks and weaknesses associated with an
[o]fferor’s proposed approach and includes an assessment of the potential for disruption of
schedule, increased cost, degradation of performance, and the need for increased [g]overnment
oversight, as well as the likelihood of unsuccessful contract performance.” AR 4-82
(Solicitation-Request for Proposal). The Air Force’s past performance analysis was designed to
evaluate “the probability of an [o]fferor successfully performing as proposed.” AR 4-80
(Solicitation-Request for Proposal).
The key to the offerors’ proofs in satisfying the Air Force’s demand for a lower price and
improved technical performance was their ability to implement a Lean program, eliminating
unnecessary activities and streamlining procedures. See supra, at 7-8. The efficiency gains
realized from the Lean program conceptually would allow a reduction in cost while decreasing
errors and faults. Id.; see also AR 54-7 (Contracting Officer’s Statement of Facts).
A learning curve is a graphical representation of the expected efficiency gains that stem
from the learning process and the improvement that comes from workers and technology
repeatedly performing the same task. AR 22-887 (Boeing Initial Proposal); Hr’g Tr. 219:1-5. To
be valid or at least to provide a good estimate for a given project, a learning curve should be
derived from data obtained with comparable work and with a regression analysis conducted on a
statistically significant number of those data points. See Hr’g Tr. 220:7-19, 223:8-20. In the
instant procurement, Boeing proposed that it would be able to achieve a [***] learning curve
during the first year or so of the PDM work, a [***] percent efficiency gain, whereas Alabama
Aircraft believed its past experiences translated to a [***] learning curve for the first year, a
[***] efficiency gain. AR 22-891 (Boeing Initial Proposal); AR 8-975 to 8-976 (Pemco Initial
Proposal); see Hr’g Tr. 220:1-5.
Efficiencies projected by a learning curve become more difficult to achieve as time
progresses because a company implements the most readily identifiable steps for realizing the
projected improvement early in the life of the program. See Yelle, The Learning Curve at 311.
Thus, learning curves tend to resemble an asymptotic function; as time progresses, the learning
curve becomes flatter. Hr’g Tr. 220:5-6.51 While efficiency gains from learning theoretically
never cease, learning declines markedly as employees and technology repeatedly perform the
51
An asymptote is “a straight line associated with a curve such that as a point moves along
an infinite branch of the curve the distance from the point to the line approaches zero and the
slope of the curve at the point approaches the slope of the line.” Merriam-Webster Collegiate
Dictionary 72 (10th ed. 1999); see also William Karush, Webster’s New World Dictionary of
Mathematics 17 (1989).
40
same task. This stands in contrast to the beginning of the learning curve, which tends to have a
steeper slope.52
In their initial proposals, Boeing and Alabama Aircraft failed to project any efficiency
gains after [***] of the contract. AR 22-899 (Boeing Initial Proposal); AR 8-977 (Pemco Initial
Proposal). When the Air Force specifically inquired why the offerors had failed to apply
continuous learning and to project efficiency gains for the duration of the contract, AR 9-5 to 9-6
(Pemco Initial Evaluation Notices), AR 23-4 (Boeing Initial Evaluation Notices), [***] Boeing
and Pemco declined to [***]. See supra, at 9-10. Boeing referred to concerns regarding “the
recent volatility in the PDM throughput and the unknowns associated with the work package in
[***] through [***].” AR 24-6 (Boeing’s Initial Offeror Response Summary). Pemco advised
that “[t]he [l]earning curve will have matured by the completion of the [***].” AR 10-9
(Pemco’s Initial Offeror Response Summary).
Nonetheless, in its final proposal to the Air Force, Boeing offered a [***], AR 27-876
(Boeing Final Proposal Revision), projecting efficiencies enabling it to “offer[] almost [***]
fewer hours than Pemco did for the basic PDM requirements” and to reduce its final price by a
sufficient margin to allow it to have the lowest total evaluated price. Pemco Aeroplex II, AR 635. Boeing’s final proposal did not address why it implemented a [***] in light of the concerns
the company expressed in response to the Air Force’s inquiry. AR 27-876 (Boeing Final
Proposal Revision). In its comments in response to the initial GAO hearing, Boeing asserted that
its decision to rely on [***] learning to reduce “touch” hours in its final proposal was the product
of a conscious business decision to assume the risk of achieving such results [***] years of
contract performance. AR 87-43 to 87-44 (Boeing Post-Hearing Comments, B-310372.1).
As GAO found, the Air Force’s initial evaluation of the offerors’ proposal failed to
properly address and document the viability of Boeing’s reduction in labor hours and price.
Pemco Aeroplex I, AR 64-16. The need for the Air Force to conduct a proper price-realism
analysis in this procurement was heightened because the contract awardee would be providing
PDM to an aging KC-135 fleet. Id. Thus, GAO’s initial decision recommended that the Air
Force “perform and document a realism assessment regarding Boeing’s assumption of [***]
decreasing labor hour requirements in the context of an aging KC-135 aircraft fleet, along with
a risk assessment regarding the potential for schedule disruption, degraded performance,
increased cost, and increased government oversight created by Boeing’s labor hour reductions.”
Id., AR 64-22 (emphasis added).
52
The steepness of the curve’s slope earlier in the Lean program is driven by the
comparative ease in attaining efficiency gains before the program reaches its maturity. See Hr’g
Tr. 219:2-4. Thus, the shape of a learning curve reflects the principle of diminishing returns.
While continuous learning is possible, it requires a larger number of repetitive experiences to
realize a smaller rate of improvement than was achieved at the start of the process. Hr’g Tr.
219:5-15.
41
The Air Force’s resulting price-realism analysis of Boeing’s proposal was limited to
information contained in Boeing’s second final proposal revision submitted in June 2007. AR
55-70 (Protest B-310372.3, Attach. 3 (Mar. 7, 2008)). The Air Force neither conducted “any
new studies or reviews” nor sought additional documentation or explanations from the offerors
or third-party consultants in conducting its price-realism analysis. Id. On February 29, 2008, the
Air Force Source Selection Authority concluded that the contract award to Boeing should be
affirmed. AR 59-1 (Source Selection Decision Document).
GAO’s initial decision identified the inconsistency of Boeing’s reduced labor hour
requirements given the “reality of the aging KC-135 fleet discussed by the agency.” Pemco
Aeroplex I, AR 64-17. The Air Force knew that Alabama Aircraft had been accounting for the
problem of aging aircraft in its proposal. AR 93.1-1571 (Contracting Officer’s Statement of
Facts, B-310372.1). And, although Boeing had failed to indicate explicitly whether or not it was
factoring in the potential increases in PDM work that would be associated with servicing an
aging fleet of KC-135s, see AR 27-822 (Boeing’s Final Proposal Revision) (stating the
conditions, assumptions, and recommendations underlying Boeing’s proposal), it had responded
to the Air Force’s inquiry about continuous learning by citing “the unknowns associated with the
work package in [***] through [***].” AR 24-6 (Boeing’s Initial Offeror Response Summary).
In this respect, the Air Force knew that the aging KC-135s contributed to an “[u]pward trend in
size and complexity of KC-135 PDM.” AR 65-2 (Air Force Talking Paper). Furthermore, the
history of performing maintenance on the KC-135 had shown “that growth in corrosion related
work is a formidable challenge and carries significant flowday risk.” Id. In short, the greatest
unknown associated with the KC-135 PDM contract was the potential that the aging of the
aircraft would require substantially more maintenance over time. See id.
Because the procurement at issue was for a fixed-price contract to perform PDM, AR 2-1
(Contracting Officer’s Statement of Facts), the aging-aircraft issue was critical to the pricerealism analysis. In Pemco Aeroplex I, GAO had recommended that the Air Force explicitly
address the analytical relationship between aging aircraft and price realism. Then, in its decision
denying the Air Force’s request for reconsideration of its first protest decision, Pemco Aeroplex
II, GAO adhered to its determination that the record of the procurement lacked a
“contemporaneous evaluation of the effect of Boeing’s reducing its proposed number of labor
hours on proposal risk or price realism,” AR 63-5, while refusing to consider the Air Force’s
contention “that the RFP actually assumes a non-aging fleet.” Id., AR 63-5 to 63-6. GAO took
this latter procedural step because the Air Force had not previously raised that defense. Id.
Nonetheless, GAO commented that it found “unpersuasive the agency’s claim that any portion of
the cited documents put offerors on notice that they should assume an aircraft fleet that does not
continue to age.” Id., AR 63-6 n.4.
Subsequently, in conducting its price-realism analysis as the corrective action to GAO’s
grant of relief in the first protest, the Air Force adhered to the position it had taken before GAO
in its motion for reconsideration. The Air Force’s Proposal Analysis Report and Price
Competition Memorandum stated that “[t]he acquisition strategy did not require Offerors to
42
estimate the impact of aging aircraft issues in the out years since these impacts would be taken
into consideration under new work packages negotiated for future fiscal years. . . . Addendum I
[to the RFP] also clarified that the Air Force intends that negotiated adjustments to the proposed
Firm Fixed Price . . . would be made . . . to accommodate . . . chronic aging aircraft issues.” AR
60-5 (Proposal Analysis Report and Price Competition Memorandum). Even more explicitly, the
contracting officer’s statement of facts filed with GAO in conjunction with Alabama Aircraft’s
second protest stated that
[i]t was fully understood by the incumbent Offerors that out year work package changes
would be negotiated since this has been the common practice for years on the prior PDM
contracts. Any new Offeror should have understood this concept as well, due to the fact
that RFP Addendum 1 stated that we would negotiate out year work package changes.
AR 54-9 (Contracting Officer’s Statement of Facts).53 Additionally, the revised Source Selection
Decision Document relied on the fact that Addendum 1 to the RFP addressed the issue of aging
aircraft by allowing the Air Force and the contract awardee to renegotiate its contract to account
for increased O&A work. AR 59-2 (Source Selection Decision Document). In effect, rather than
awarding a firm fixed-price contract as the RFP envisioned, the Air Force’s subsequent
statements indicate that this “fixed price” contract was subject to continued contractual
renegotiations because of aging aircraft and was at best a firm fixed-price contract only for the
first year.
The heavy reliance that the Air Force places on Addendum 1 to address the issue of
performing PDM on an aging KC-135 fleet is not justified. First, the administrative record
demonstrates that Boeing probably, and Alabama Aircraft emphatically, did not understand that
the aging-aircraft issue was “off the table.” Both offerors had initially applied learning curves to
reduce “touch” hours for the PDM work only in the [***] of their offers because of concerns not
just about the leveling of the learning curve but also about aging aircraft. See supra, at 9-10.
Second, Addendum 1’s statements regarding the potential for the Air Force to change the scope
of the PDM work requirements for later years of the contract, AR 46.12-367 (RFP-Addendum 1),
do not adequately support the Air Force’s contention that the issue of additional maintenance
required by aging aircraft was effectively taken off the table by provisions allowing for
contractual renegotiation. That reference addresses only O&A work. Aging aircraft also will
cause “standard” PDM to increase. That is so even if some categories of “standard” PDM work
would be converted over time to O&A work because of the aging aircraft issue. See AR 78-139
(Pemco Comments on the Agency Record, Ex. V (C/KC-135 Depot Maintenance Hours per
Aircraft (Feb. 2006))) (illustrating graphically the increasing maintenance requirements for the
53
The contracting officer’s statement of facts for the second protest before GAO
somewhat inconsistently stated that the problem presented by aging aircraft was not “part of the
analysis required by the evaluation criteria in the context of a solicitation for proposals,” but
aging aircraft were “an issue, from a contractual stand point.” AR 54-21 (Contracting Officer’s
Statement of Facts).
43
KC-135). Indeed, the Air Force’s own working paper projected that the aging of the KC-135 had
the potential to increase “manhours per aircraft from 26,000 to 44,000 by 2012.” AR 65-2 (Air
Force Talking Paper). The Addendum itself provides that “[a]ny tasks that require 200 or less
hours to complete and are required to complete a task called out by the contract are considered to
be part of the basic PDM effort under the contract even if they are not specifically called out by
the contract or the attachments.” AR 46.12-365 (RFP-Addendum 1). Thus, under the provisions
of Addendum 1, many of the added maintenance tasks that result from servicing an aging KC135 fleet would not be eligible for contractual renegotiation or incorporation into future O&A
work packages.
In sum, the RFP and Addendum 1 did not notify offerors that the Air Force was seeking
to receive proposals that were premised upon a non-aging KC-135 fleet. As a consequence, the
Air Force’s price-realism analysis that relies upon a non-aging fleet for its conclusions is fatally
flawed. Furthermore, GAO’s decision to reject the second protest offers no adequate rationale
for sustaining the Air Force’s action. In Pemco Aeroplex IV, GAO accepted that “the solicitation
contemplate[d] periodic renegotiation of the required PDM work packages, along with negotiated
adjustments to the contractor’s compensation.” AR 91-6 n.10. As noted, Addendum 1 to the
RFP indeed indicated that changes would occur for the O&A work, AR 46.12-367 (RFPAddendum 1), but that fact could not account adequately for the increasing demands for PDM
work on an aging fleet, as discussed above. In addition, the record does not support GAO’s
further comment that even if the RFP and Addendum 1 did not remove the issue of providing
PDM for the aging fleet, any increases in maintenance “would not be significant enough to offset
Boeing’s projected efficiencies.” Pemco Aeroplex IV, AR 91-6. To the contrary, the record
indicates that Boeing’s rapidly flattening learning curve would be rapidly overtaken by the
increasing demands for maintenance attributable to fleet aging. The Air Force’s own estimates
of these increasing demands show as much. Compare AR 60-15 (Proposal Analysis Report and
Price Competition Memorandum) (Boeing’s learning curve), with AR 65-2 (Air Force Talking
Paper) (providing the Air Force’s estimate of the increasing hours required for PDM due to the
aging of the fleet). In short, GAO was right the first time it addressed the issue, in Pemco
Aeroplex I and Pemco Aeroplex II, and not the second time in Pemco Aeroplex IV.
Consequently, the court finds that the Air Force’s price-realism analysis in this
procurement was “arbitrary and capricious” within the meaning of 5 U.S.C. § 706(2)(A). The
crucial challenge faced by the Air Force in this procurement was to provide maintenance
appropriate to extending the useful life of an aging fleet of KC-135 Stratotankers. Failing in the
first instance to deal explicitly with the aging-fleet issue in the RFP, as amended, and then
seeking to sidestep the aging-fleet issue in the price-realism analysis of Boeing’s prevailing offer
in this very close competition, renders the Air Force’s award to Boeing unsustainable.
This result should not detract from the fact that the administrative record shows that the
Air Force’s actual PDM work in recent years on the KC-135 fleet has been exemplary. The
record reflects timely completion of maintenance with nearly error-free results, and at a
reasonable cost. The improvements over recent years at the Air Force’s organic PDM line at
44
Tinker Air Force Base and at Boeing’s and Alabama Aircraft’s facilities have been notable. The
Lean program at those facilities has been successful. Moreover, the Air Force contracting officer
and staff in this procurement undertook careful, painstaking work on all issues but one. The
actions respecting that remaining issue, however, are determinative of the result in this case.
D. Prejudice to Alabama Aircraft
Having found that the Air Force’s price-realism analysis was fatally flawed, the court
turns to the question whether the error materially prejudiced Alabama Aircraft. See Bannum, 404
F.3d at 1351; Advanced Data Concepts, 216 F.3d at 1057. Both Boeing and Alabama Aircraft
were considered as having submitted awardable offers. See AR 61-91 (Finalized Decision
Briefing) (“All [p]roposals are [a]wardable.”). The Air Force also concluded that “[t]he two
incumbents, Boeing and PEMCO, are similarly priced with Boeing slightly lower by $15,048,602
at the bottom line T[otal] E[valuated] P[rice].” AR 59-25 (Source Selection Decision
Document). The Air Force chose Boeing as the contract awardee because “of Boeing’s superior
Mission Capability proposal and $15,048,062 lower T[otal] E[valuated] P[rice].” AR 59-27
(Source Selection Decision Document). Boeing’s decision to embrace a [***] learning curve in
its final proposals accounted for its lower price. Pemco Aeroplex I, AR 64-15. Thus, the Air
Force’s failure to conduct an appropriate price-realism analysis on one of the two outcome
determinative factors in this procurement affected which of the competitors would receive the
contract.
In sum, Alabama Aircraft has demonstrated that “there was ‘a substantial chance it would
have received the contract award’” had the Air Force conducted an appropriate price-realism
analysis that accounted for the increased maintenance needs of its aging KC-135 fleet. Galen
Med. Assocs., 369 F.3d at 1331 (citation omitted); see also PGBA, LLC v. United States, 60 Fed.
Cl. 196, 220-21 (2004), aff’d, 389 F.3d 1219 (Fed. Cir. 2004). Thus, Alabama Aircraft has
shown that it has been prejudiced by the Air Force’s failure to conduct an appropriate pricerealism analysis.
III. EQUITABLE RELIEF
If a protester succeeds in showing that the contracting agency’s decision is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C.
§ 706(2)(A), the court “may award any relief that the court considers proper, including
declaratory and injunctive relief except that any monetary relief shall be limited to bid
preparation and proposal costs.” 28 U.S.C. § 1491(b)(2). The decision whether injunctive relief
should issue is governed by the traditional four factor test: “(1)whether . . . the plaintiff
[protestor] has succeeded on the merits of the case; (2) whether the plaintiff will suffer
irreparable harm if the court withholds injunctive relief; (3) whether the balance of hardships to
the respective parties favors the grant of injunctive relief; and (4) whether it is in the public
interest to grant injunctive relief.” PGBA, 389 F.3d at 1228-29 (citing Amoco Prod. Co. v.
45
Village of Gambell, Alaska, 480 U.S. 531, 546 n.12 (1987)).54 In awarding injunctive relief, a
court endeavors to place the plaintiff in “the position they would have occupied in the absence of
[the violation].” Milliken v. Bradley, 433 U.S. 267, 280 (1977); see also Missouri v. Jenkins, 515
U.S. 70, 88 (1995) (“[T]he nature of the . . . remedy is to be determined by the nature and scope
of the . . . violation.”) (citation omitted).
Alabama Aircraft requests that this court issue a permanent injunction setting aside the
award to Boeing and directing the Air Force to award it the KC-135 PDM contract. Pl.’s Mot. at
39-40. Alternatively, Alabama Aircraft seeks to enjoin performance of the new contract until the
Air Force reevaluates the proposal submitted under the RFP and issues a new award decision. Id.
at 40.
In applying the four factor test for injunctive relief, Alabama Aircraft is in a relatively
strong position because it has succeeded on the merits of its claims and demonstrated that it was
prejudiced by the Air Force’s errors. Therefore, Alabama Aircraft has satisfied the test’s first
factor.
In examining whether Alabama Aircraft will suffer irreparable harm if the court denies
the requested injunctive relief, the court begins its analysis with the question of whether Alabama
Aircraft has an adequate remedy at law. It is hornbook law that the “mere loss of money does not
qualify as irreparable harm if the party can be made whole through money damages.” Hawaiian
Dredging Constr. Co. v. United States, 59 Fed. Cl. 305, 317 (2004). However, in bid-protest
cases the governing statutory regime curtails the amount of monetary relief a court may grant.
See 28 U.S.C. § 1491(b)(2) (limiting money relief in bid protest cases “to bid preparation and
proposal costs”). Therefore, in a bid protest, “a lost opportunity to compete on a level playing
field for a contract . . . has been found sufficient to prove irreparable harm.” Seattle Sec. Servs.,
Inc. v. United States, 45 Fed. Cl. 560, 571 (2000); see also Hospital Klean of Tex, Inc., v. United
States, 65 Fed. Cl. 618, 624 (2005) (“Here, absent injunctive relief, [plaintiff] will lose the
opportunity to earn the profit it would have made under this contract.”).55 Given the Air Force’s
failure in the RFP and amendments to address the aging nature of the KC-135 fleet and the Air
Force’s associated failure to conduct an appropriate price-realism analysis, Alabama Aircraft has
shown that it will suffer irreparable harm absent action to enjoin the award of the KC-135 PDM
contract to Boeing.
54
The Supreme Court’s decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388
(2006), uses slightly different words to describe what is essentially the same test for equitable
relief.
55
“Support also exists for the proposition that the denial of the right to have a bid fairly
and lawfully considered constitutes irreparable harm.” Overstreet Elec. Co. v. United States, 47
Fed. Cl. 728, 744 n.25 (2000) (citations omitted).
46
In balancing the hardships among Alabama Aircraft, the government, and Boeing, the
court must weigh the potential harm to Alabama Aircraft if injunctive relief is not awarded
against the potential harm to the government and Boeing if such relief is granted. If the court
failed to award the requested equitable relief, the hardship that would befall Alabama Aircraft is
manifest–it would be deprived of the opportunity to compete for, and perhaps perform, a contract
which was awarded to Boeing on the basis of a flawed RFP and an equally flawed price-realism
analysis. Alabama Aircraft claims that the government will not suffer any hardship because it is
“willing and able to provide uninterrupted KC-135 PDM,” Pl.’s Reply at 49, just as Boeing also
has shown itself willing and able to provide continuing PDM under the bridge contract with
Alabama Aircraft serving as Boeing’s subcontractor. Mitigating any harm to the Air Force is the
presence of an option to extend the current bridge contract beyond September 30, 2008. Hr’g Tr.
92:20-24. This option period would allow the Air Force to ensure that the KC-135 Fleet
continues to receive the necessary PDM.
The Air Force contends that the balance of the hardships favors it because its “expressed
need for uninterrupted PDM on the KC-135” necessitates that the award to Boeing be allowed to
move forward. Def.’s Cross-Mot. at 40. The Air Force claims that its ability to support the KC135 aircraft will be downgraded if it is unable to move ahead with the award to Boeing. Id. at 39.
Furthermore, the Air Force claims that reopening negotiations will force the government to “deal
with Boeing upon a sole source basis” and will result in the government not recognizing the
savings that came from a competitive solicitation. Id. at 39-40. These claims by the Air Force
are patently without merit. Nothing prevents the Air Force from obtaining more favorable terms
for a new bridge contract, either from Boeing or Alabama Aircraft, each of whom quoted closely
comparable prices for continuing PDM, or from both of them.
Boeing’s discussion of the hardship factor focuses upon the harm that has befallen the Air
Force due to the delayed start of performance caused by the legal challenges to the Air Force’s
award decision. Boeing’s Cross-Mot. at 49. Boeing avers that this delay has “prevented [the Air
Force] from proceeding under a contract that offers significant cost advantages.” Id. In addition,
Boeing cites other aspects of its proposal that the Air Force has been unable to invoke because of
the delay in beginning performance caused by Alabama Aircraft’s challenge. Id.
Balancing the hardships between the claims of Alabama Aircraft, on the one hand, and
the government and Boeing on the other, the court concludes that enjoining the Air Force’s
award of the contract to Boeing would not work a serious hardship on the Air Force and Boeing.
Under the current bridge contract, both Boeing and Alabama Aircraft have shown an ability
successfully to work together. Neither Alabama Aircraft nor Boeing have indicated that they
would be unwilling to continue in their present contractual relationship if the Air Force’s
decision were overturned and more time was needed to solicit and award a new contract.
Importantly, as the bridge contract has progressed, Alabama Aircraft and Boeing have shown
increased proficiency in performing KC-135 PDM. AR 19-37 (Pemco Past Performance
Worksheets), AR 33-63 (Boeing Past Performance Worksheets). For fiscal year 2007, Boeing
and Alabama Aircraft’s accepted defects per KC-135 serviced were very low. AR 19-37 (Pemco
47
Past Performance Worksheets), AR 33-63 (Boeing Past Performance Worksheets). Thus,
enjoining the award to Boeing would not prevent the Air Force’s aging fleet of KC-135
Stratotankers from receiving high-quality PDM. The potential that this PDM might be at a
slightly higher price than the Air Force would like is dependent upon the Air Force’s ability to
negotiate a bridge contract or an extension of the current bridge contract with modified terms.
The final factor for the court to consider in examining Alabama Aircraft’s request for
injunctive relief is whether granting the requested relief would serve the public interest. It is well
established that there is “an overriding public interest in preserving the integrity of the
procurement process.” Hospital Klean, 65 Fed. Cl. at 624. Mindful of the considerations that
have informed its analysis, the court finds that the public interest would be served by issuing
injunctive relief. Appropriately framed, an injunction will not adversely affect the Air Force’s
ability to maintain the KC-135 fleet. And, the public’s strong interest in a fair procurement
process and in providing a remedy for a flawed procurement process and result trumps the
concerns set forth by the government in its briefs. See id. at 624. Thus, the court concludes, after
an examination of the relevant factors, that Alabama Aircraft is entitled to an injunction setting
aside and nullifying the Air Force’s award of the KC-135 PDM contract to Boeing. Before it
may award a new contract for KC-135 PDM, the Air Force must initiate a new solicitation and
adequately address the issue of performing maintenance on an aging KC-135 fleet.
CONCLUSION
For the reasons stated, Alabama Aircraft’s motion for judgment upon the administrative
record is GRANTED IN PART.56 Boeing’s and the government’s cross-motions for judgment
upon the administrative record and their motions to dismiss are DENIED.57
The Air Force’s award of Solicitation Number FA81005-05R-0014 to Boeing is set aside
and the Air Force is enjoined from proceeding with the award to Boeing. The Air Force must
resolicit the procurement and take the necessary steps in a new solicitation to address explicitly
the role of an ever-aging KC-135 fleet on the PDM to be performed.
In addition, Alabama Aircraft is awarded its reasonable costs incurred in bid preparation
and proposal. See CNA Corp. v. United States, 83 Fed. Cl. 1, 10 (2008); Geo-Seis Helicopters,
Inc. v. United States, 77 Fed. Cl. 633, 650 (2007). Bid preparation and proposal costs are
56
Alabama Aircraft’s motion for judgment is denied in part because the court is without
power to direct the Air Force to award the contract to Alabama Aircraft.
57
Alabama Aircraft’s motion dated August 7, 2008 for leave to file a memorandum
addressing a matter identified in the court’s earlier opinion is GRANTED IN PART and
DENIED IN PART. It is GRANTED insofar as the motion and Appendix C to the motion are
concerned, but it is denied respecting Exhibits A, B and D. The government’s motion filed
August 14, 2008 to strike Alabama Aircraft’s motion is DENIED.
48
awarded in addition to injunctive relief because of the lengthy process involved with the
procurement and the government’s failure ever to clarify the aging-aircraft issue in the RFP and
amendments to it. Alabama Aircraft shall submit its accounting of such costs on or before
October 28, 2008. The government shall respond to Alabama Aircraft’s submission on or before
November 21, 2008.
The clerk is directed to enter judgment for Alabama Aircraft in accord with this decision.
Because there is no just reason for delay regarding the award of injunctive relief, the court directs
the clerk to enter final judgment under RCFC 54(b) respecting that relief.
On or before October 6, 2008, the parties are requested to submit proposed redactions of
any confidential or proprietary information that may be set out in this decision as rendered under
seal.
No costs.58
It is so ORDERED.
s/ Charles F. Lettow
Charles F. Lettow
Judge
58
The court acknowledges with appreciation the excellent briefs and oral arguments of
each counsel in this exceptionally complicated case. Particularly given the time constraints that
applied to counsels’ work, the resulting presentations were commendable.
49